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Document of
The World Bank
Report No.: ICR00003218
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(Grant IDA-H4840)
ON A
GRANT
IN THE AMOUNT OF SDR 5.5 MILLION
(US$8 MILLION EQUIVALENT)
TO THE
ISLAMIC REPUBLIC OF AFGHANISTAN
FOR A
FINANCIAL SECTOR STRENGTHENING PROJECT
April 30, 2015
Finance and Markets Global Practice
Afghanistan Country Unit
South Asia Region
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CURRENCY AND EQUIVALENTS
(Exchange Rate Effective April 1, 2015)
Currency Unit = Afghani (AFN)
AFGN 1 = US$0.0173
US$1 = AFN 57.9
FISCAL YEAR
December 21 – December 201
ABBREVIATIONS AND ACRONYMS
ABA Afghanistan Bankers Association
AIBF Afghanistan Institute of Banking and Finance
AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism
ANDS Afghanistan National Development Strategy
ARDS Afghanistan Reconstruction and Development Services
CBS Core Banking Solution
CR Collateral Registry
DA Designated Account
DAB Da Afghanistan Bank
EEC Enabling Environment Conference
EG&PSS Economic Governance and Private Sector Strengthening
FIU Financial Intelligence Unit
FSRRP Financial Sector Rapid Response Project
FSSP Financial Sector Strengthening Project
GDP Gross Domestic Product
GoA Government of Afghanistan
HR Human Resources
HRM Human Resources Management
IAS International Accounting Standards
ICB International Competitive Bidding
ICR Implementation Completion and Results Report
IDA International Development Association
IFC International Finance Corporation
IMF International Monetary Fund
IP Implementation Progress
ISN Interim Strategy Note
1 Afghanistan financial year was modified in 2011. It used to be March 21 – March 20.
ISR Implementation Status and Results Report
MFI Microfinance Institution
MISFA Microfinance Investment Support Facility for Afghanistan
ML/FT Money Laundering/Financing of Terrorism
MoF Ministry of Finance
MTR Mid-term Review
NCB National Competitive Bidding
PCB Private Commercial Bank
PCR Public Credit Registry
PDO Project Development Objective
PEP-MENA Private Enterprise Partnership–Middle East and North Africa
PIC Project Implementation Cell
PSC Project Steering Committee
SCB State-owned Commercial Bank
SDU Special Disbursement Unit
SOE Statement of Expenditure
SME Small and Medium Enterprise
STL Secured Transactions Law
TTL Task Team Leader
USAID United States Agency for International Development
Vice President: Annette Dixon
Country Director: Robert J. Saum
Practice Manager: Niraj Verma
Project Team Leader: Guillemette Sidonie Jaffrin
ICR Team Leader and Primary Author: John P. Byamukama
CONTENTS
DATA SHEET ............................................................................................................................. i
B. Key Dates ................................................................................................................................ i
C. Ratings Summary .................................................................................................................... i
D. Sector and Theme Codes ........................................................................................................ ii
E. Bank Staff ............................................................................................................................... ii
F. Results Framework Analysis .................................................................................................. ii
G. Ratings of Project Performance in ISRs ............................................................................... iv
H. Restructuring (if any) ............................................................................................................. v
I. Disbursement Profile ............................................................................................................. vi
1. Project Context, Development Objectives and Design ....................................................... 1
2. Key Factors Affecting Implementation and Outcomes ...................................................... 7
3. Assessment of Outcomes .................................................................................................. 14
4. Assessment of Risk to Development Outcome ................................................................. 18
5. Assessment of Bank and Borrower Performance ............................................................. 19
6. Lessons Learned................................................................................................................ 22
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners................... 22
Annex 1: Project Costs and Financing ..................................................................................... 24
Annex 2: Outputs by Component ............................................................................................. 26
Annex 3: Economic and Financial Analysis ............................................................................. 30
Annex 4: Bank Lending and Implementation Support/Supervision Processes ....................... 31
Annex 5: Beneficiary Survey Results ....................................................................................... 34
Annex 6: Stakeholder Workshop Report and Results ............................................................... 35
Annex 7: Summary of Borrower’s ICR and/or Comments on Draft ICR ................................ 36
Annex 8: Comments of Cofinanciers and Other Partners/Stakeholders .................................. 53
Annex 9: List of Supporting Documents .................................................................................. 54
MAP .......................................................................................................................................... 55
i
DATA SHEET
A. Basic Information
Country: Afghanistan Project Name:
Afghanistan Financial
Sector Strengthening
Project
Project ID: P110644 L/C/TF Number(s): IDA-H4840
ICR Date: 04/29/2015 ICR Type: Core ICR
Lending Instrument: SIL Borrower: GOVERNMENT OF
AFGHANISTAN
Original Total
Commitment: XDR 5.50M Disbursed Amount: XDR 1.50M
Revised Amount: XDR 1.50M
Environmental Category: C
Implementing Agencies:
DA AFGHANISTAN BANK
Cofinanciers and Other External Partners:
B. Key Dates
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 04/15/2008 Effectiveness: 06/18/2009 06/18/2009
Appraisal: 03/10/2009 Restructuring(s): 02/13/2014
Approval: 04/30/2009 Mid-term Review: 09/01/2012 02/24/2013
Closing: 06/30/2014 06/30/2014
C. Ratings Summary
C.1 Performance Rating by ICR
Outcomes: Unsatisfactory
Risk to Development Outcome: Substantial
Bank Performance: Moderately Unsatisfactory
Borrower Performance: Moderately Unsatisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank Ratings Borrower Ratings
Quality at Entry: Moderately
Unsatisfactory Government: Moderately Satisfactory
Quality of Supervision: Moderately
Unsatisfactory
Implementing
Agency/Agencies:
Moderately
Unsatisfactory
ii
Overall Bank
Performance:
Moderately
Unsatisfactory Overall Borrower
Performance:
Moderately
Unsatisfactory
C.3 Quality at Entry and Implementation Performance Indicators
Implementation
Performance Indicators
QAG Assessments (if
any) Rating
Potential Problem Project
at any time (Yes/No): No
Quality at Entry
(QEA): None
Problem Project at any
time (Yes/No): Yes
Quality of Supervision
(QSA): None
DO rating before
Closing/Inactive status: Unsatisfactory
D. Sector and Theme Codes
Original Actual
Sector Code (as % of total Bank financing)
Banking 70 64
Credit Reporting and Secured Transactions 30 36
Theme Code (as % of total Bank financing)
Infrastructure services for private sector development 15 15
International financial standards and systems 24 24
Other Financial Sector Development 3 3
Regulation and competition policy 58 58
E. Bank Staff
Positions At ICR At Approval
Vice President: Annette Dixon Isabel M. Guerrero
Country Director: Robert J. Saum Nicholas J. Krafft
Practice Manager/Manager: Niraj Verma Simon C. Bell
Project Team Leader: Guillemette Sidonie Jaffrin Md. Reazul Islam
ICR Team Leader: John P. Byamukama
ICR Primary Author: John P. Byamukama
F. Results Framework Analysis
Project Development Objectives (from Project Appraisal Document) The project development objective was to help DAB improve its core function of banking
supervision and regulation; and to help improve access to formal banking services by establishing
key initial building blocks for further financial sector reform.
iii
Revised Project Development Objectives (as approved by original approving authority)
Not Applicable
(a) PDO Indicator(s)
Indicator Baseline Value
Original Target
Values (from
approval
documents)
Formally
Revised
Target Values
Actual Value
Achieved at
Completion or
Target Years
Indicator 1 :
Overall improvement of DAB's core functions of banking supervision and regulation as
perceived by the commercial banks through biannual service and evaluated by the
supreme council.
Value
quantitative or
Qualitative)
45 90 Not measured
Date achieved 04/10/2009 06/30/2014 06/30/2014
Comments
(incl. %
achievement)
The survey of commercial banks was conducted once in 2010 and no other survey was
taken after that,
Indicator 2 : Improve the ranking of the Getting Credit indicator in the annual Doing Business
Report
Value
quantitative or
Qualitative)
178 150 86
Date achieved 04/10/2009 06/30/2014 06/30/2014
Comments
(incl. %
achievement)
This was not a good indicator to measure project outcomes. The ranking is dependent
on performance in other countries. Afghanistan rank stood at 86 and 89 in the 2014 and
2015 Reports respectively. CR and PCR launched in March and Dec. 2013 respectively.
(b) Intermediate Outcome Indicator(s)
Indicator Baseline Value
Original Target
Values (from
approval
documents)
Formally
Revised Target
Values
Actual Value
Achieved at
Completion or
Target Years
Indicator 1 : Increase in number of items of collateral registered in CR
Value
(quantitative
or Qualitative)
0 2000 1700
Date achieved 04/10/2009 06/30/2014 12/15/2013
Comments
(incl. %
achievement)
CR became operational in February 2013, has a total registered value of AFN 28.4
billion and all the commercial banks have accounts. Target was 85% achieved. The
number of registered items had increased to 3,000 by the end of December 2014.
Indicator 2 : Increase in the number of commercial banks staff trained in Afghanistan Institute of
Banking and Finance (AIBF)
Value
(quantitative 0 500 3064
iv
or Qualitative)
Date achieved 04/10/2009 06/30/2014 06/30/2014
Comments
(incl. %
achievement)
The target was vastly exceeded. The actual figure includes staff of commercial banks
and MFIs trained. AIBF is now a recognized institute and had started scaling up its
activities. But it went through institutional difficulties in 2014.
Indicator 3 : Decrease in the number of days required to process supervisory data collected from the
commercial banks
Value
(quantitative
or Qualitative)
20 4 20
Date achieved 04/10/2009 06/30/2014 06/30/2014
Comments
(incl. %
achievement)
The off-site banking supervision activity was not implemented as the output of the IT
consultant was rejected by the Borrower. Target was 0% achieved.
Indicator 4 : DAB's financial statements prepared according to international financial reporting
standards with an UNQUALIFIED opinion.
Value
(quantitative
or Qualitative)
Unqualifed Opinion Unqualified Opinion Unqualified Opinion
Date achieved 04/10/2009 06/30/2014 06/30/2014
Comments
(incl. %
achievement)
The result of this indicator cannot be attributed to the project as technical assistance on
accounting was minimal. The indicator was also not robust; baseline was "Unqualified
Opinion" and end-target was also "Unqualified Opinion".
Indicator 5 : Increase in the number of training courses implemented on the basis of training needs
assessment results.
Value
(quantitative
or Qualitative)
90 135 0
Date achieved 04/10/2009 06/30/2014 06/30/2014
Comments
(incl. %
achievement)
The strengthening of HR management in DAB was not implemented (based on the
findings of the Mid-term Review (MTR)).
Indicator 6 : Increase in the number of credit reports sent by the public credit registry (PCR) to the
commercial banks
Value
(quantitative
or Qualitative)
0 7000 0
Date achieved 04/10/2009 06/30/2014 06/30/2014
Comments
(incl. %
achievement)
The PCR was launched in December 2013, one month before cancellation of the project
proceeds and six months earlier than the closing date. But by December 2014, 471
credit reports had been generated.
G. Ratings of Project Performance in ISRs
No. Date ISR
Archived DO IP
Actual Disbursements
(USD millions)
1 11/23/2009 Satisfactory Satisfactory 0.00
v
2 06/30/2010 Moderately Satisfactory Moderately Unsatisfactory 0.40
3 02/14/2011 Moderately Unsatisfactory Moderately Satisfactory 0.40
4 12/28/2011 Moderately Satisfactory Moderately Satisfactory 1.09
5 07/09/2012 Moderately Satisfactory Moderately Satisfactory 1.28
6 06/08/2013 Moderately Unsatisfactory Moderately Unsatisfactory 1.68
7 01/27/2014 Unsatisfactory Unsatisfactory 2.32
H. Restructuring (if any)
Restructuring
Date(s)
Board
Approved PDO
Change
ISR Ratings at
Restructuring
Amount
Disbursed at
Restructuring
in USD millions
Reason for Restructuring & Key
Changes Made DO IP
02/13/2014 N U U 2.32
Following the March 2013 MTR,
it was decided to restructure the
project in coordination with a
parallel project, the Financial
Sector rapid response Project
(FSRRP). The undisbursed SDR4
million (US$5.6 million) of the
FSSP was to be cancelled and
selected activities of FSSP would
be transferred to the FSRRP under
Additional Financing in order to
complete them. The FSSP
proceeds were cancelled in
February 2014 and the project
closed on schedule on June 30,
2014
vi
I. Disbursement Profile
1
1. Project Context, Development Objectives and Design
1.1. Context at Appraisal
1. Country and Sector Background: Afghanistan is a low-income country of 30.6 million
people with a gross domestic product (GDP) of US$20.7 billion (in 2013). At the time of
Appraisal of the Financial Sector Strengthening Project (FSSP) in early 2009, Afghanistan
had experienced war and internal strife for almost thirty years. During this time, much of
the country’s infrastructure and human capital had been destroyed. The country also
experienced political extremes, from the Communist Government supported by the Soviet
Union, which implemented a centralized economy, to the Taliban Government with almost
total neglect of the economy.
2. The formal economy and the financial system in Afghanistan were almost non-existent in
2001 after the fall of the Taliban regime. However, there had been some progress made in
the development of the country since 2001, but Afghanistan still faced threats from an
armed insurgency, a high rate of joblessness, high incidence of poverty, especially in the
rural areas, and lack of proper governance, including corruption. Additionally, the financial
sector faced the risk of being used as a conduit for channeling and laundering of illegal
funds from the opium economy and for financing terrorist and insurgent activities.
3. Since 2003, Afghanistan had experienced significant (although volatile) economic growth.
Key growth drivers were post-conflict recovery in traditional agriculture, reconstruction,
and public sector investments financed through large external donor assistance. Real GDP
growth was in double digits between 2002 and 2006, but was reduced to 7.4 percent in
2007 and to about 3.5 percent in 2009 (due to drought conditions in the country); per capita
income increased from US$125 in 2002 to US$300 in 2006.
4. Financial Sector Background. At the time of Appraisal of the FSSP, Afghanistan’s formal
financial sector had experienced considerable growth, although from a low base, especially
with regard to private commercial banks and an increase in the amount of loans and
deposits. The banking sector grew from two state-owned commercial banks and four state-
owned development banks in 2003 to ten privately-owned commercial banks, two state-
owned commercial banks, and five branches of foreign commercial banks in 2009. Total
assets of the banking system had increased from AFN 19.3 billion (US$386 million) in
2005 to AFN 116.7 billion (US$2.3 billion) in 2008, and the share of the private
commercial banks had expanded from 21 percent to 63 percent with an increase in the
amount of their assets from AFN 4.0 billion (US$81 million) to AFN 73.5 billion (US$1.4
billion).
5. Despite this overall growth in the sector and the economy, Afghanistan’s financial sector
still remained weak and fragile and was identified as one of the constraints to private sector
development. It was acknowledged that the sector did not meet the financial needs of
businesses and individuals. Due to highly collateralized lending practices, along with a lack
of financial intermediation capacity in the financial sector, access to credit was a serious
bottleneck to private sector development. The share of total credit to GDP was 6.7 percent
2
(2007) which was far less than the average in South Asia at 43 percent. Afghanistan ranked
178th out of 181 countries in Doing Business (2009) rankings for “Getting Credit”, a
measure of credit information-sharing and legal rights of borrowers and lenders.
6. There had been considerable efforts to rebuild the financial sector in terms of its
institutional and legal framework, including enactment in 2004 of the Law of Da
Afghanistan Bank (DAB), the Afghanistan Central Bank, and the Law of Banking in
Afghanistan, but there was still a disproportionately weak capacity for banking supervision
at DAB, and underdeveloped financial infrastructure. The laws were meant to lay a
foundation for the re-establishment of DAB as the central bank with autonomous
regulatory authority to implement monetary policy and banking regulation and supervision.
However, in a situation where the private commercial banks were experiencing rapid
growth, the inability of DAB to undertake rigorous banking supervision exposed the
banking sector to systemic risks. The poor performance or failure of one of these
commercial banks would easily shatter public confidence in the financial sector.
7. Strong commitment of the Government: The Government of Afghanistan (GoA) recognized
improvement of the financial system and better access to finance as the main factors to
enhance economic development in the country. In the Afghanistan Compact (2006), the
GoA committed itself to undertaking a series of financial sector reforms, including
strengthening the banking supervision function of DAB, and restructuring of state-owned
banks. In addition, under the Enabling Environment Conference (EEC) Road Map (2007),
the GoA, together with Development Partners and the private sector, agreed to take
strategic actions with a view to “strengthening the financial sector to increase access to
credit and financial services.”
8. These strategic actions were further reflected in the Afghanistan National Development
Strategy (ANDS) 2008-13 under the pillar of Economic Governance and Private Sector
Development. The ANDS described a modern and competitive financial sector as one of
its main development objectives and articulated a strategy to expand the availability and
range of financial products and services. The objectives of the FSSP were also in line with
the priorities of the DAB Strategic Plan (2009-2014): (i) strengthening the supervisory
function; (ii) building an accurate credit information system; (iii) reforming human
resources; and (iv) enhancing capacity in the financial sector.
9. Rationale For Bank Involvement: At the time of project design, the USAID-funded
Afghanistan Economic Governance and Private Sector Strengthening (EG&PSS) Project,
that contributed immensely to DAB’s institutional building in a number of areas since 2002
(including on-site examination, laws and legislation, licensing external, off-site reporting,
early warning systems, and external audit regime, among others) had ended (Ref: Project
Appraisal Document (PAD), page 18). The core project ended in September 2008 but a
few consultants continued work on a “no-cost extension” basis until February 2009.
USAID was expected to continue to support DAB’s capacity building in on-site
examination through a new contract (the EGGI contract provided this technical assistance
until the contract was suspended in 2011) coupled with assistance from the IMF METAC
Facility. However, there was a gap in the off-site supervisory function, which was
3
understaffed and needed to be strengthened and automated. The DAB also wanted to
address weaknesses in its internal control systems, to prepare Accounting and Audit
Manuals and train staff on their usage, and to reform the Human Resources Department.
The government requested for assistance in these areas and the Bank provided support
through the FSSP.
10. Contribution to higher level objectives: The objectives of the FSSP were in line with the
Economic and Social Development pillars of the Bank’s Interim Strategy Note (ISN) for
Afghanistan of April 2006, and the new ISN scheduled for delivery in June 2009. The three
strategic pillars were: (i) building the capacity of the state and its accountability to citizens
to ensure delivery of services that are affordable, accessible, and of adequate quality; (ii)
promoting growth of the rural economy and improving rural livelihoods; and (iii)
supporting growth of a formal, modern, and competitive private sector.
11. As mentioned earlier, Afghanistan ranked poorly in “Access to Credit” indicators and thus
the project was a good fit to complement other Bank projects in supporting the private
sector in Afghanistan. The FSSP also had the advantage of having the International Finance
Corporation (IFC) on board for technical advice in the implementation of the Public Credit
Registry (PCR) and Collateral Registry (CR).
1.2. Original Project Development Objectives (PDO) and Key Indicators
12. The PDO was to help DAB improve its core function of banking supervision and
regulation, and to help improve access to formal banking services by establishing key
initial building blocks for further financial sector reform.
13. Project Outcome Indicators: The project identified two outcome indicators to measure
the attainment of the PDO:
i. Overall improvement of DAB’s core functions of banking supervision and
regulation as perceived by the commercial banks through bi-annual surveys and
evaluated by the Supreme Council;
ii. An improvement of Afghanistan’s position on the “Getting Credit” ranking on the
World Bank’s Doing Business indicators.
1.3. Revised PDO and Key Indicators, and reasons/justification
The PDO and Key Indicators were not revised during the project period. Following the Mid-
term Review in March 2013, it was concluded that the project needed to be restructured, in
coordination with a parallel project, the Financial Sector Rapid Response Project (FSRRP)2,
2 This project (US$22 million) was approved in 2011 following the Kabul Bank crisis to finance audits of ten
commercial banks and to modernize the national payments system (as it was argued by the Afghan authorities that
4
also implemented by DAB. The overall restructuring approach was approved in August 2013
and involved the following: (i) cancellation of undisbursed balance of FSSP; and (ii)
Additional Financing to FSRRP to continue selected activities of the FSSP. The Additional
Financing was approved in November 2013 and the Government requested for a cancellation
of the undisbursed balance (SDR4 million) of FSSP in early December 2013.
1.4. Main Beneficiaries
14. The first main beneficiary was the DAB. The project aimed to help DAB improve its core
function of banking supervision and regulation. The second main beneficiaries were the
players in the financial sector, especially the commercial banks, which would benefit from
the creation of the PCR and CR by getting comprehensive and timely credit reports, reliable
collateral, and stability in the financial sector as a result of more rigorous supervision by
DAB, and increased human resource skills from the training at AIBF. The other
beneficiaries were the general Afghanistan population, and individuals and private sector
enterprises, who would benefit from improved access to financial services.
1.5. Original Components
15. The Project had two components, briefly described below:
16. Component 1 - Strengthening the Capacity of Da Afghanistan Bank (US$5.7 million).
This component aimed to support strengthening of DAB capacity through provision of
consultancy services and financing of IT system development in three critical areas: (i)
developing off-site supervision systems and supervision competencies in DAB; (ii)
creating an effective accounting and internal auditing system functioning according to
generally acceptable international standards, which was operationally critical and
necessary to establish DAB’s credibility; and (iii) establishing an effective human resource
management system so it could move from relying on expatriate advisors to relying instead
on well-trained and empowered Afghan national staff.
17. Component 2 - Development of Basic Infrastructure in the Financial Sector (US$2.3
million). In close collaboration with the IFC, this component aimed to support establishing
the following basic financial sector infrastructure in Afghanistan: (i) a Public Credit
Registry (PCR) that would provide lenders with information for efficient risk assessment
of borrowers; (ii) a Collateral Registry (CR) for movable property aimed to provide lenders
the ability to effectively use borrowers’ property as collateral; and (iii) the Afghanistan
Institute of Banking and Finance (AIBF) that would support development of professional
human resources for the financial sector. In supporting the establishment of PCR and CR,
IFC was to provide technical advice for a legal framework, vendor selection, and a public
awareness program, while the International Development Association (IDA) was to
provide funding for the physical development of necessary IT systems and training of staff
on use of the systems. IDA was also to provide support for establishing the AIBF, for
Kabul Bank could not be liquidated as it was responsible for civil servants salary payments, including the army and
the police).
5
training equipment, for hiring AIBF staff, and for developing a training collaboration with
a regional banker’s training institute.
1.6. Revised Components
18. There were no revisions to the components.
1.7. Other Significant Changes
19. Financial Sector Rapid Response Project approved in August 2011. Following the
Kabul Bank crisis in 2010 (see Box 1 below), the Government of Afghanistan asked the
World Bank to finance audits according to international standards of ten commercial banks
in Afghanistan. In relation to this request, the project team considered restructuring the
FSSP to cover the cost of these audits. However, in early 2011, despite slow
implementation progress3, it was considered that the objectives and activities of the FSSP
were still highly relevant and needed. An Additional Financing to FSSP was also proposed
but was rejected by Bank Management4. It was then decided to prepare a new project to
finance the requested audits as well as modernization of the payments system5 under
OP/BP 8.0 (emergency procedures). The project was approved in August 2011.
3 When an institution implements a World Bank financed project for the first time, it is not unusual, in weak capacity
environments, that implementation progress is initially slow, but then accelerates once the institution becomes more
familiar and confident with World Bank procedures.
4 As progress towards achievement of Development Objectives of the FSSP was rated Moderately Unsatisfactory
(because of the Kabul Bank crisis), a waiver for Additional Financing had to be sought. This request for a waiver was
rejected.
5 As explained in Footnote 2, the Government of Afghanistan considered that Kabul Bank could not be liquidated as
it was responsible for most civil servants salary payments. It was therefore decided to finance the modernization of
the payments system as a medium term solution to facilitate payments in Afghanistan.
6
Box 1: The Kabul Bank Crisis
Concerns over the soundness of Kabul Bank caused a run on the bank in early September 2010 during which
the bank lost about half of its US$1.3 billion deposits. With one-third of the banking system’s assets of US$4
billion, the crisis threatened the stability of the financial system. The authorities removed the management of
the bank, putting the bank into conservatorship, and guaranteed all deposits. This helped stem the initial panic
and stopped the run. When the dust had settled, the government had to shoulder US$825 million for the cost
of the lender-of-last-resort facility loans that covered the deposit guarantee (about 5 percent of GDP). Kabul
Bank was subsequently put into receivership, revoking shareholders’ rights altogether.
Aside from the fiscal costs, the Kabul Bank crisis has had a negative impact on intermediation, as it had by
far the largest and most effective branch network in the country and an effective payments system. These
helped bring individuals into the formal sector and supported the government’s program of automating
employee records and salary payments.
Kabul Bank has been split up into a good bank and a bad bank. The bank’s deposits and good assets were
transferred to a bridge bank, New Kabul Bank. For the time being, New Kabul Bank cannot extend loans and
is envisaged to be privatized in 2012*. The bad assets have been retained by the receiver, appointed and
overseen by the independent Financial Dispute Resolution Commission. Based on current estimates, about
US$935 million in the asset portfolio are sought for recovery.
The Kabul Bank crisis has magnified the risks of rapid banking sector growth with inexperienced supervision
and weak rule of law. Moreover, it has undermined confidence in the banking sector (preference for cash
increased and deposit growth came to a halt) and further overburdened banking supervision.
Adapted from IMF Country Report No. 11/330 (November 2011)
*The privatization of New Kabul Bank is still pending.
20. Cancellation of credit proceeds: By the Mid-term Review in March 2013, almost four
years into implementation, the FSSP had disbursed only 20 percent of Grant proceeds of
US$8 million. The project’s implementation progress and disbursement had been very
slow, due to delays in procurement and an over-ambitious project design, in the weak
capacity environment. The ratings of both progress toward achievement of PDO and
implementation progress were downgraded from “Moderately Unsatisfactory” to
“Unsatisfactory” in the last Implementation Status and Results Report (ISR) of January
2014. Following the agreed restructuring strategy (described in Section 1.3 above), the
Government of Afghanistan (GoA) requested the cancellation of the remaining SDR4
million (US$5.6 million) as of December 7, 2013, with the closing of the FSSP remaining
at the scheduled closing date (on June 30, 2014). The cancellation of undisbursed grant
proceeds was approved by the Bank on February 13, 2014.
21. Reallocation of Project activities: As part of the restructuring process, the following
activities were reallocated and incorporated into the Financial Sector Rapid Response
Project (FSRRP) under an Additional Financing arrangement: (i) re-designed support for
banking regulation and supervision based on FSSP lessons (US$4.5 million); (ii) support
for the establishment of PCR (US$2.2 million); and (iii) technical assistance and training
for the implementation of the PCR and CR. This Additional Financing was designed taking
7
into account the lessons identified during the Mid-term Review of the FSSP. Considering
the weak capacity environment and the difficulty in attracting qualified consultants in
Afghanistan, it was decided to focus significant resources on one critical activity (banking
regulation and supervision) to be able to attract qualified firms and to pursue the delayed
but well performing activities of FSSP (the PCR and CR).
2. Key Factors Affecting Implementation and Outcomes
2.1. Project Preparation, Design, and Quality at Entry
(a) Soundness of the Background Analysis
22. The project was designed after a substantial amount of analysis of the needs of the
financial sector in Afghanistan. The FSSP was based on the needs of financial sector
reforms as identified by the GoA in its various policy papers such as the Afghanistan
Compact (2006), the EEC Roadmap (2007), the ANDS (2008-13), and the DAB Strategic
Plan (2009-14). The World Bank had also carried out a Financial Sector Study in
Afghanistan in 2004 and an Investment Climate Assessment in 2006. A combination of the
above policies and assessments provided the analytical underpinning for choosing the
specific interventions included in the project. The FSSP aimed to build on the work and
achievements of the World Bank (earlier Finance and Private Sector Development projects
included the Expanding Microfinance Outreach and Improving Sustainability Project,
2008-2012 and ARTF Microfinance Support for Poverty Reduction Project, 2003-2010)
and other donors in the financial sector, especially the International Monetary Fund (IMF)
and the United States Agency for International Development (USAID). The project
enjoyed support and endorsement of donors as well as from the government of
Afghanistan. The Bank finalized the scope and components of the FSSP after thorough
analysis of the existing literature and numerous consultations with donors.
(b) Assessment of the Project Design
23. Project activities supported the achievement of the PDO. Project preparation benefitted
from collaboration between the Bank and IFC teams and identified correctly what needed
to be done. However, the project design was ambitious and did not forecast the worsening
security environment in Afghanistan. The delivery model that was chosen focused more
on use of individual consultants, which in hindsight was not suited for the rising insecurity
in Afghanistan6. Project Concept Review and Decision Meetings confirmed that not only
did financial sector reforms remain a major challenge, but that the resources available for
the project were also not adequate to achieve the proposed targets, given the country
6 At project design, the team chose to rely on individual consultants embedded in DAB rather than firms, as recent
experience at DAB had shown that little capacity transfer was happening when relying on firms. It should also be
highlighted that when the World Bank re-engaged in Afghanistan, the security situation was relatively stable. Security
started to worsen in 2007/2008 at the time of project design.
8
context. The Bank team was advised to take into account lessons learned from USAID and
from other donors’ experiences in Afghanistan. In this regard, the team held discussions
with USAID, IMF, and the Department for International Development (DFID), among
other donors, on the proposed project components.
(c) Adequacy of Government Commitment
24. The Government showed strong commitment to the financial sector reforms from the outset
as evidenced from its policy papers and the priority the Governor of DAB gave to the
project. The Government was fully involved and committed to project objectives and
activities at appraisal. However, the project approach of building capacity of DAB through
the contributions of individual international consultants was not effective due to challenges
in recruiting suitable expatriate expertise in a challenging security environment7.
Procurement delays and failures in the procurement process of the IT firm and the contract
for establishing the PCR slowed the pace of implementation.
The Kabul Bank crisis in September 2010 was another major blow to the perceived
progress in financial sector development in Afghanistan. Its resolution became the main
priority of the Afghan authorities (Ministry of Finance and DAB) in 2011. DAB was
particularly affected by the Kabul Bank crisis which highlighted weaknesses in banking
supervision and in the overall governance of DAB and the Afghan financial sector.
Subsequently, at the request of the Afghan Parliament, the Governor of DAB named the
list of Kabul Bank defaulters and then fled to the United States in June 2011. A new
Governor was appointed, after several months, in November 2011.
(d) Assessment of Risks
25. A number of risks at the country/sector/project level were identified during preparation and
their mitigation was discussed with the DAB. Major potential risks were at the sector and
project level relating to the sustainability of the project outcomes. These include:
Money Laundering and Terrorist Financing (ML/FT) fueled by the opium
economy. The existence of the opium economy and an increasing amount of
government corruption in an environment of a weak anti-money laundering regime
at DAB and at the commercial banks, and the lack of investigative techniques and
measures raised a high possibility of the occurrence of Money Laundering and
Financing of Terrorism. While this risk required a significant drive from GoA and
collaboration with the international community to bring it down, DAB had already
set up a Financial Intelligence Unit to monitor and record any suspicious
transactions. The creation of the PCR and CR would also allow the banks to build
a verifiable data set of individuals and their transactions which could be used as
7 In the increasingly insecure environment, it proved extremely difficult for DAB to hire qualified individual
consultants, because under such contracts, the consultants are responsible for their own security. Under such
circumstances, it is generally more effective to hire firms with experience in conflict-affected countries who can afford
to provide security for their employees.
9
part of the wider Anti-Money Laundering and Combating the Financing of
Terrorism (AML/CFT) efforts.
Lack of a timely Legal Framework for a PCR. If a new law were to be required
for the operation of a PCR, the slow pace at which laws are developed in
Afghanistan would also slow down the start of operations of the PCR. When IFC
conducted an assessment of the existing laws, it found out that a new law was not
necessary but that the DAB could adopt its existing rules or regulations to allow for
operations of a PCR. It was agreed that this requirement would be included in the
Financing Agreement as a condition for disbursement for this component.
Lack of Legal Framework for Collateral Registry. There was a risk that the
Secured Transactions Law (STL) would not be approved by the National Assembly
in time to allow for operationalizing the CR. The mitigating factor was that the
Lower House had approved the law in March 2009 (before Project Negotiations)
and there was no precedent where the Upper House turned down a law approved
by the Lower House. To be safer, DAB agreed to include the adoption of
appropriate legislation enabling the creation of a CR as a disbursement condition
in order to have leverage for pushing for timely enactment of the law.
Weak Implementation Capacity in DAB. It was acknowledged that DAB had
never implemented a donor-funded project itself, and that the USAID had hired
Bearing Point to implement its project. The mitigating factor for this risk was that
a Project Implementation Cell (PIC) had been set up well in advance of the start of
implementation, its members were briefed on their respective roles and
responsibilities, and their capacity would be further strengthened through the
assistance provide by international consultants. The PIC was supposed to be under
the oversight of a Project Steering Committee (PSC) chaired by the Governor or
the First Deputy Governor. The PSC was expected to regularly review the progress
of the project and provide policy advice and guidance to the PIC to ensure the
project was implemented smoothly.
Lack of Coordination between IFC and IDA. There was a risk that lack of
coordination between the IDA and IFC teams would slow down project
implementation. This risk was identified and discussed between the two teams
earlier on during preparation and it was agreed that the legal agreements would be
structured in such a manner to ensure smooth implementation. It was also agreed
that IFC and IDA teams would carry out joint implementation support missions
twice every year.
2.2. Implementation
26. Project implementation started off smoothly in June 2009 with the Project Director (PD),
the PIC, and the Project Steering Committee (PSC) already in place. Prior to project
effectiveness, the PD and the head of the procurement department at DAB were sent for
training in World Bank procurement in Hyderabad, India.
10
27. Five months into implementation, there were early signs that there were going to be
implementation delays on account of failure to attract good quality consultants on three out
of the first six consultant assignments advertised, which eventually had to be re-advertised.
This problem continued to be a recurrent feature throughout the life of the project. By the
Mid-term Review in March 2013, the project had only two major achievements: (i)
establishment of the Afghanistan Institute of Banking and Finance (AIBF); and (ii) launch
of the Collateral Registry. The contract for the PCR had just been signed in February 2013
and total disbursements from the Grant amounted to about US$2 million (20 percent of the
total Grant amount).
28. There were two main factors that affected the pace of implementation. They were: (i) DAB
was implementing a World Bank project for the first time and the expected implementation
support from international consultants was delayed, which resulted in slow initial
implementation progress; and (ii) difficulty in attracting qualified individual international
consultants (both individual and firms) to a deteriorating security environment.
29. While DAB was enthusiastic about the project, DAB was implementing a World Bank
project for the first time and did not have adequate internal capacity. It took 18 months
after the project became effective to hire the proposed international consultants to support
and mentor the DAB staff assigned to the PIC. There also were financial management
issues that persisted until an international financial management expert was hired. The
design of the project appears to have been optimistic about the time the PIC staff would
take to fully understand the World Bank implementation guidelines and procedures.
30. The problems with attracting qualified individual international consultants were
recognized at an early stage but once – in early 2011 – three international consultants were
in place, there was hope implementation progress would be accelerated. In addition,
considering the procurement delays encountered by the project, it was decided to focus on
three major activities: the implementation of the movable collateral registry (CR), the
implementation of the public credit registry (PCR) and re-launching the procurement of
the IT Consultancy firm. The project faced another procurement set back with the first bids
for the PCR assessed as non-compliant. The procurement process therefore had to be re-
launched. It was decided to undertake the MTR after the procurement of the PCR had been
completed – which delayed the MTR till early 2013.
31. Mid-term Review (MTR). A MTR was carried out in March 2013 for this project. By that
time, after three and a half years of project implementation, the FSSP had disbursed only
20 percent of total Grant proceeds of US$8 million. The project’s implementation progress
and disbursements were very slow due to an ambitious project design (considering the
weak capacity environment), delays in procurement, and an unsuitable implementation
approach (in a deteriorating security environment) of relying on individual international
experts to support and train the PIC staff, and to implement some activities in Component
1 (building the capacity of DAB in accounting, auditing, HR Management, and off-site
supervision). Based on the recommendations of the MTR, the ratings of both progress
toward achievement of PDO and implementation progress were downgraded from
“Moderately Unsatisfactory” to “Unsatisfactory” (Ref: Implementation Status and Results
11
Report (ISR), Seq. #7). The MTR noted that it was highly unlikely that the project would
achieve its development objectives. It recommended restructuring the project and focusing
on key activities in order to increase effectiveness and impact. The restructuring was
supposed to have been completed by June 2013 (Ref: ISR Seq. #6) but the process for the
overall restructuring (FSSP and FSRRP) was approved in August 2013 (Ref: Management
Letter sent to Ministry of Finance and DAB on September 1st, 2013). As indicated earlier,
as part of the restructuring, the undisbursed balance of the FSSP was to be cancelled and
selected activities were to be transferred to FSRRP through an additional financing.
2.3. Monitoring and Evaluation (M&E) Design, Implementation and Utilization
32. M&E Design: There were repeated comments during the design and appraisal phases, at
the Quality Enhancement Review (QER) and Decision Meeting, about the inadequacy of
the proposed Monitoring and Evaluation framework. As it turned out, the performance
indicators used to measure achievement of the PDO were not adequate, a fact that was
again highlighted during the Mid-term Review. The first PDO indicator required the
commercial banks to grade the performance of DAB’s core functions of banking
supervision and regulation. This created an inherent conflict of interest for the commercial
banks since they were being regulated by DAB and therefore could not be relied upon to
be independent in their assessment. It is conceivable that commercial banks may prefer a
more lenient central bank than a central bank that firmly enforces laws and regulations.
The second PDO indicator used a “Getting Credit” ranking from the World Bank’s Doing
Business Report to measure improvements in credit information sharing and legal rights of
borrowers and lenders. However, this ranking depends on comparisons of performance
across countries and does not measure absolute achievements in just one country. Absolute
rankings (versus the overall comparative ranking) included within the Getting Credit
indicator could have been used instead.
33. For the Intermediate Results Indicators, six indicators were identified of which five were
quantifiable and could be measured directly from the outputs of the various projects
activities. The sixth indicator was qualitative because it measured whether DAB’s financial
statements were “Qualified” or “Unqualified” by the external auditors.
34. M&E Implementation and Utilization: The Monitoring and Evaluation function was the
responsibility of the PIC at DAB. The data for the first PDO indicator was supposed to be
collected by the Afghanistan Bankers Association (ABA) using a bi-annual survey of
commercial banks, and evaluated by the DAB Supreme Council. However, the survey of
commercial banks was conducted once in 2010 after which no survey was carried out
because of the Kabul Bank crisis (following the crisis, it appeared ill-advised to ask
commercial banks to comment on banking supervision). Data for all the other indictors was
to be collected by the PIC using annual and semi-annual reports prepared by the various
project beneficiaries and the project’s external auditors.
35. The implementation of the FSSP was monitored in accordance with the M&E plan during
the initial year of the project. However, because of the slow pace of implementation of
most activities thereafter, there was little or no data generated in the subsequent years that
12
would be used to measure progress of implementation and progress towards achievement
of the PDO. The bi-annual survey of commercial banks was carried out only once—in
April 2010—and was never carried out again after the Kabul Bank crisis in September
2010. The performance of the PCR could not be monitored because the contract for its
establishment got delayed and was signed at the time of the MTR. The PCR was launched
in December 2013, and by that time the Government had already requested that the
remaining Grant proceeds be cancelled and that the contracts for the remaining activities
under this sub-component be moved to the FSRRP in preparation for the closing of the
FSSP, as per the agreed restructuring. Establishment of the CR and the AIBF are the only
two activities where results were achieved during implementation and where progress was
monitored regularly.
2.4. Safeguard and Fiduciary Compliance
36. Safeguards. The FSSP was rated as a Category C project. According to the project
appraisal document, the Project did not fund any activity with potential direct impact on
local environmental and social aspects. Therefore the project was not envisaged to trigger
either environmental (OP 4.01) or social (OP 4.12) safeguards. The FSSP was an
Emergency Technical Assistance operation just to help support financial sector reforms so
as to increase the availability of financial services in Afghanistan in an efficient and
effective manner based on an appropriate legal and regulatory framework for both
consumers and lenders to enforce their rights.
37. Procurement. The assessment of Procurement Risk at Appraisal was rated as “High” due
to a lack of adequate procurement experience by the DAB staff, lack of a procurement
expert in Government, and limited capacity in the private sector. To mitigate the risk, it
was agreed that Bank staff would carry out an intensive but narrowly focused procurement
training program for DAB staff both in English and Dari, and that the staff of the Director
General (Services & Constructions, in charge of DAB procurement) would attend training
programs conducted by the Procurement Policy Unit (PPU) of the Ministry of Finance
(MoF). In addition, the government’s central procurement facilitation unit, the Afghanistan
Reconstruction and Development Services (ARDS-PU), would support DAB for large
value procurement following National Competitive Bidding/International Competitive
Bidding (NCB/ICB) procedures.
38. There were procurement problems from the outset with failure to attract well qualified
individual international consultants in the Afghanistan environment of rising insecurity.
This also impacted the performance of the PIC since the staff members were unfamiliar
with Bank procedures and had been expected to be supported by the international
consultants. Procurement was continuously downgraded from “Satisfactory” at project
effectiveness to “Moderately Satisfactory” and then to “Moderately Unsatisfactory” by
June 2011 due to the delays in getting a qualified IT consultant and in procuring the
equipment (software and hardware) for the PCR. It was eventually upgraded to
“Satisfactory” following the staffing of the PIC with international and national
procurement specialists, and the finalizing of the contract for an IT consultancy firm. It
continued to be rated “Satisfactory” up to project closing.
13
39. The “Satisfactory” rating does not seem justified in light of the multiple rounds of tendering
that were needed to get qualified consultants for the various activities, which led to lengthy
delays throughout project implementation (the project team considered that these
procurement difficulties were beyond the control of DAB procurement staff). The
unsatisfactory performance of the chosen IT consultancy firm at DAB led to the decision
during the MTR to suspend the automation of off-site supervision, which had been a major
ticket item of the project. The main issue in this regard was that after unsuccessful attempts
to attract a qualified individual consultant with banking supervision expertise, the scope of
work of the IT consultancy firm was expanded to include banking supervision expertise.
However, the IT firm adopted a purely IT-driven (rather than business-need driven)
approach and focused on automating existing systems without assessing whether existing
systems needed to be first improved and then automated. This experience confirmed that
attracting qualified consultants (individual and firms) is extremely challenging in
Afghanistan.
40. Financial Management. The overall Financial Management (FM) risk for the FSSP was
rated “High” during appraisal, and as a mitigation measure it was agreed to minimize use
of the Designated Account (DA) (it had a ceiling of US$400,000), to maximize direct
payments (amounts exceeding US$80,000) to contractors and consultants, and to hire
international consultants to support the PIC in its fiduciary responsibilities. However, the
project became effective without both an international FM Consultant at the PIC and an
FM manual. The FM rating was quickly downgraded to “Moderately Unsatisfactory”.
While these shortcomings were addressed and the FM rating had been upgraded to
“Satisfactory” by June 2012, it was again downgraded to “Moderately Unsatisfactory” in
February 2013 due to weaknesses identified in the capacity of FM (there were
shortcomings in the IFRs and the project did not have a quick-book accounting system
which required purchase of some software). At the time the project closed, most of these
weaknesses had been rectified and the final FM rating was “Moderately Satisfactory”.
2.5. Post-completion Operation/Next Phase
41. The MTR of March 2013 concluded that with the current design and rate of implementation
of the FSSP, it was highly unlikely that the project would achieve its development
objectives; and that a restructuring was required. The agreed restructuring involved the
following: to cancel the undisbursed Grant proceeds of SDR4 million, to close the FSSP at
the scheduled closing date, and to transfer critical outstanding activities to the FSRRP. The
restructuring of the FSSP was finalized in February 2014. The critical outstanding activities
of the FSSP8 were moved to the FSRRP under an Additional Financing (AF) arrangement
8 The selected activities to be covered under the FSRRP Additional Financing include: (i) targeted activities to
strengthen DAB’s capacity based on lessons from the implementation of the FSSP; (ii) development of the financial
sector infrastructure; and (iii) technical assistance and training for project implementation, including technical
assistance for the PCR and CR.
14
in the amount of SDR4.4 million (equivalent to US$6.7 million). The implementation of
FSRRP and its Additional Financing is progressing slowly but satisfactorily.
3. Assessment of Outcomes
3.1. Relevance of Objectives, Design, and Implementation
42. Relevance of Objectives. The relevance of objectives is rated as “High”. The Project
Development Objective of the FSSP was to help DAB improve its core functions of
banking supervision and regulation, and to help improve access to formal banking services
by establishing key initial building blocks for further financial sector reform. The project
was prepared in a conflict-affected emergency environment and the PDO was consistent
with the Government priority to rebuild the financial sector as outlined in the Afghan
Compact (2006), the EEC Road Map (2007) and the ANDS 2008-2013. The Government
was cognizant of the fact that lack of finance was one of the main challenges to economic
development, and that a properly functioning financial sector was necessary to support
private-sector development. The financial sector, which had been destroyed during the 30
years of conflict, needed proper supervision and new financial infrastructure (such as the
PCR and CR) to facilitate increased access to financial services. Since a number of private
banks had entered the Afghanistan financial sector between 2003 and 2008, it was
imperative that the capacity of the DAB to supervise and regulate the sector required
strengthening so as to minimize potential systemic risks. Moreover, the financial sector
also faced the risk of being used as a conduit for the channeling and laundering of illegal
funds from the opium economy, and for financing of terrorists and insurgent activities. The
project thus served as an important entry point for a sustainable engagement for broader
financial sector reforms that would lead to increased access to financial services across the
country and ensure stability in the sector.
43. Relevance of Design. The design of the Project is rated “Modest”. While the PDO was in
line with the financial sector policy reforms that the government was committed to and that
were reinforced by the donors, the project design (especially Component One) proved over-
ambitious considering the weak capacity environment. In addition, with a deteriorating
security environment, attracting qualified international individual consultants – as per the
project design – proved increasingly difficult. The results framework was also not
comprehensive or robust enough to measure the performance of both the PDO and
intermediate outcomes. At the technical level, the project correctly identified the priorities
for financial sector strengthening. However, the proposed implementation mechanism was
no longer appropriate in a deteriorating security environment.
15
44. Relevance of Implementation. The relevance of Project Implementation is rated “Low”.
The Project ran into implementation delays within the first six months of implementation
due to the failure to attract well-qualified individual consultants willing to work in the
insecure Afghanistan environment. Having identified the problem, the team did not
proactively take measures at an early stage to change the project design in a manner that
could better suit the Afghan environment. As such, procurement was continuously
downgraded from “Satisfactory” at Project effectiveness to “Moderately Satisfactory” and
then to “Moderately Unsatisfactory” by June 2011 due to the delays in getting a qualified
IT consultant for Component One and in procuring equipment for the PCR. Because of the
slow pace of implementation, the Project was only able to disburse 29 percent of the
proceeds in four and a half years of implementation. The Results Framework for the project
was also inadequate and should have been another driver to undertake restructuring earlier
in the project. For example, following the Kabul Bank crisis, the authorities realized that
asking for the opinion of commercial banks on the quality of banking supervision at DAB
was ill-advised. A new PDO indicator should have been introduced at this point to measure
the achievements under Component One, which would have required a restructuring.
3.2. Achievement of Project Development Objectives
45. The project did not achieve most of its stated objectives. The indicators used to measure
the achievements were either not adequate and/or not monitored over the life of the project.
The first PDO indicator which was supposed to be based on annual surveys of commercial
banks’ perception of DAB’s performance on its core functions was not monitored, and only
one survey was carried out (in 2010) throughout the life of the project. As already indicated,
this indicator was not appropriate as the authorities came to realize after the Kabul Bank
crisis. The second PDO indicator, which was supposed to measure improved access to
financial services, was a poor choice because it was based on a comparison between
Afghanistan and other countries rather than on the absolute improvement in the country
itself. With regard to intermediate outcomes, the achievements were negligible, as
explained below.
46. Component One: Strengthening the capacity of DAB. This component was supposed to
involve the setting up of IT systems to help in automation of off-site supervision and
automation of human resources. It took a long time to obtain a suitable consultant for
assessing the IT requirements, design, implementation and supervision of IT installations
(the first procurement process failed when the selected firm turned down the offer due to
security concerns), and the consultancy firm that was eventually procured did not provide
quality output on technical specifications for the required IT systems to automate off-site
supervision. The firm’s output was rejected by the authorities and the activity for
automation of off-site supervision at DAB was suspended.
47. With regard to the establishment of an effective human resource management (HRM)
system at DAB, a consultant was hired who developed ten human resource policies and
conducted initial training, but the consultant cancelled his contract before its term ended.
The automation of HRM did not take place within the project lifetime. The IT firm
concluded that a new information system for HRM was not necessary. Instead, the firm
16
recommended the installation of a missing module (the attendance module) and
customizing the Human Resource Management system in the existing Core Banking
Solution (CBS) of DAB. This recommendation was not implemented during the lifetime
of the project and was transferred to FSRRP.
48. Component Two: Development of basic infrastructure in the financial sector. This
component was focused on establishing: (i) a PCR that would provide lenders with
information for effective risk assessment on borrowers; (ii) a CR for movable property that
would enable lenders to effectively use borrowers’ property as collateral; and (iii) the
Afghanistan Institute of Banking and Finance (AIBF) to support development of
professional human resources for the financial sector. The implementation of both PCR
and CR was supported by IFC Technical Assistance in the areas of legal framework, vendor
selection, and a public awareness program, and IDA provided the physical development of
necessary IT systems and training of staff to operate the systems.
49. The CR was launched in February 2013 just before the Mid-term Review, and by December
2013 it had 1700 items of collateral registered, compared to an end-project target of 2000.
This was one of the few successful activities under the project. The procurement of PCR
software and hardware experienced long delays (the first bids were declared non-
compliant). The contract was signed in February 2013, and the PCR was launched formally
in December 2013 at around the time the Government requested for cancellation of the
Grant as part of the agreed restructuring. However, the most recent data shows that by
March 2015, 1,370 credit reports had been sent by the PCR to commercial banks. Some
uncompleted activities related to the operation of the PCR were transferred to the FSRRP.
The establishment of the AIBF was also one of the few activities that was implemented in
a timely manner and it became operational in November 2010. By December 2013, about
3,000 staff of commercial banks and Micro Finance Institutions (MFI) had been trained at
the institute and it was continuing to expand its activities with the support of various
development partners. Unfortunately, the AIBF is currently facing institutional difficulties
following major staff changes in 2014.
3.3. Efficiency
50. At appraisal, due to the nature of the project, it became difficult to quantify the economic
and financial benefits of the project, which in turn made it difficult to carry out a proper
‘Cost-Benefit Analysis’. The team instead carried out, with DAB Management, a “business
benefits” review of the investments in four areas, including: (i) internal process efficiency;
(ii) benefits to internal and external clients; (iii) benefits for compliance, regulatory and
control framework; and (iv) work process and manpower efficiency (Annex #9 PAD). The
ICR, following the appraisal approach, listed the “business benefits “of achieved activities
under Component 2 (establishment of Afghanistan Institute of Banking and Finance
(AIBF), the Public Credit Registry and the Collateral Registry). There were virtually no
benefits under Component 1 since none of the activities were completed. The results of
Component 2 were more positive, with the establishment of the CR, PCR and AIBF, with
continuous support under FSRRP. Efficiency for the project is rated as “Unsatisfactory”.
17
3.4. Justification of Overall Outcome Rating
Rating: “Unsatisfactory”
51. The following summarizes the overall outcome ratings based on Relevance, Achievements,
and Efficiency.
The overall outcome rating is “Unsatisfactory”. While the relevance of the project
objectives was ”High” in light of the urgent needs of the Afghanistan financial sector at
the time, the relevance of the design was “Modest” because the designed proved over-
ambitious and vulnerable to a deteriorating security environment and because it had a weak
results framework. Given the implementation delays faced within the first eighteen months
of the project, the Bank task team failed to address these design weaknesses through a
timely project restructuring, and this negatively impacted the pace of implementation.
There were minimal achievements under Component One which accounted for 71 percent
of the project proceeds. Efficacy is rated “Unsatisfactory” because the first PDO indicator
was not suitable and was never measured consistently, the second PDO indicator does not
measure per se increase in access to finance (it measures the strength of credit reporting
systems and the effectiveness of collateral and bankruptcy laws in facilitating lending), and
both indicators9 should have been changed during implementation. In addition, four out of
the six intermediate indicators were not met. Efficiency is rated “Unsatisfactory” as the
beneficiaries under Component One did not receive any tangible benefits and the PCR was
launched just before the Grant proceeds were cancelled.
3.5. Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
52. While poverty and social development were not applicable, gender impact was proposed
in the PAD as follows: “The FSS Project will therefore finance an HR adviser to advise
and develop a set of new HR policies as set out above and assist in their implementation
for HR reform in DAB which would include ‘Gender Mainstreaming’” (Ref: PAD, page
28). While a harassment general and sexual harassment policies were prepared by a
consultant, there is no indication that these policies were implemented.
(b) Institutional Change/Strengthening
53. The Afghanistan Institute of Banking and Finance (AIBF) was established and has
provided training to over 3,000 staff from commercial banks and microfinance institutions.
9 The indicator Getting Credit (which measures the strength of credit reporting systems and the effectiveness of
collateral and bankruptcy laws in facilitating lending) may have been relevant for the project, but the M&E
framework should not have tracked the overall ranking of Afghanistan – which is impacted by the performance of
other countries.
18
IDA and IFC collaborated in the establishment of the CR and PCR and the two registries
were launched in February 2013 and December 2013 respectively and are fully operational.
The Public Credit Registry collects information from creditors and available public sources
on a borrower’s credit history. The Registry compiles information on individuals and/or
small firms, such as information on credit repayment records, court judgments, and
bankruptcies, and then creates a comprehensive credit report that is sold to creditors. The
moveable Collateral Registry registers notices of securing charges in movable assets as
collateral for loans or other financing, and notices of lien in all types of movable assets.
This registry, which facilitates securing debt and creating contracts using movable
property, in particular facilitates access to finance for small and medium enterprises. By
December 2014, a total of 3,687 items of collateral had been registered in the CR and the
PCR had issued 471 reports (and 1,370 reports by March 2015).
(c) Other Unintended Outcomes and Impacts (positive or negative)
54. None
3.6. Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
55. Not Applicable
4. Assessment of Risk to Development Outcome
Rating: Substantial
56. The PAD had identified five potential risks that the project faced, although some of these
risks were not rated. The risks included: i) increases in money laundering; ii) increases in
terrorist financing; iii) the failure to put in place a legal framework for a PCR and CR in a
timely manner; iv) weak implementation capacity in DAB; and v) lack of coordination
between IFC and IDA. The money laundering and terrorist financing risks were
considered ”High” because of the opium economy with a high degree of smuggling and
trafficking, the integration of the informal financial “Hawaladar” network into the formal
financial networks of neighboring countries, the weak anti-money laundering regime in
place in DAB and the commercial banks, and the lack of investigatory techniques and
measures.
57. While the capacity building activities, specifically the automation of off-site supervision,
at DAB were not completed under the FSSP, some of them have been transferred to the
FSRRP, which should help augment capacity at DAB in the coming years. An increase in
DAB’s capacity to regulate the financial sector is critical for its enforcement of anti-money
laundering activities. The collaboration between IDA and IFC in the establishment of the
CR and PCR worked well, because these two systems are fully operational and capacity to
operate them has already been created within DAB. However, there is a risk that a change
in the Director of the CR and PCR at DAB could affect the operation of the two registries.
19
The AIBF, which had been established and was working well until 2013, has run into
institutional difficulties following a major change in its staff in 2014.
5. Assessment of Bank and Borrower Performance
5.1. Bank Performance
(a) Bank Performance in Ensuring Quality at Entry
Rating: “Moderately Unsatisfactory”
58. The Bank’s performance in ensuring quality at entry was “Moderately Unsatisfactory”.
The project team undertook significant analysis of the Afghanistan financial sector in order
to choose the components to include in the project. It used various reports prepared by the
Bank (Financial Sector Study 2004) and the Government (EEC Road Map 2007, ANDS
2008-2013, and DAB Strategic Plan 2008-2013) to ensure that the project objectives were
aligned with the Government’s vision for the sector. The team also held consultations with
other donors operating in the sector, notably USAID and the IMF, about the relevant entry
points for supporting the government reforms in the sector.
59. The design of the project, however, was overly ambitious, given the limited capacity, and
its delivery model became vulnerable to a deteriorating security environment. The choice
of a capacity building approach that relied on international individual consultants was no
longer appropriate with rising insecurity. The design also did not have a robust Monitoring
and Evaluation system, and the PDO-level indicators chosen were not suitable to measure
achievement of development objectives.
(b) Quality of Supervision
Rating: Moderately Unsatisfactory
60. The composition of the Bank Team varied over the life of the project and was comprised
of financial sector development specialists (Lead and Senior), senior private sector
development specialists, financial management specialists, procurement specialists, legal
counsel from the Bank, and a Principal Financial Specialist from IFC. There were two Task
Team Leaders (TTL) during the implementation phase of the project, both based in Kabul,
with the change in TTLs occurring in early 2011. Implementation progress was
documented by the Bank team in Aide Memoires after supervision missions and in ISRs
every 6 months (and on some occasions every 12 months). These helped provide Bank
management with updates on implementation progress and have also provided background
for preparing the Implementation Completion and Results Report (ICR).
61. The problem of delayed procurements continued to slow down the pace of implementation.
In the case of the critically important consultancy position for the IT systems for DAB,
which was responsible for implementing about 60 percent of the project, it took more than
two years to be put in place. The team responded to the delays by downgrading the
20
implementation progress (IP) to “Moderately Unsatisfactory”. However, there were no
immediate proactive steps taken to address the underlying problem of difficulties in
attracting qualified individual consultants to the project. A restructuring would have been
advisable by mid-2011, two years after the start of what was now a slow implementation,
in order to change course and use a different implementation approach. This would also
have been a suitable time to revise the M&E framework and introduce appropriate
performance indicators.
62. The Mid-term Review (MTR) had originally been scheduled for September 1, 2012, but it
did not take place until late February 2013, when it was apparent that the project was not
on track to meet its development objectives, with only 20 percent of project proceeds
disbursed. The decision of the MTR mission to restructure the project, and then the
subsequent decision to cancel the project and transfer the funds and a limited number of
key activities into the FSRRP, although occurring late in the process, were the correct
decisions under the circumstances.
(c) Justification of Rating for Overall Bank Performance
Rating: “Moderately Unsatisfactory”
63. Overall Bank performance is rated “Moderately Unsatisfactory” on account of the
weaknesses in the design and implementation phases noted above. While the project was
responding to an urgent and visible need from the Government, and while the initial design
was grounded in sound analysis of the Afghanistan financial sector, the method of
implementation chosen did not adequately take into account the Afghan political, security,
and economic environments. When implementation began and faced significant delays, the
team took too long to suggest the necessary changes that would be required if the project
were to meet its development objectives.
5.2. Government Performance
(a) Government Performance
Rating: “Moderately Satisfactory”
64. Government Performance is rated as “Moderately Satisfactory”. The Government showed
full commitment to the reform of the financial sector during the preparation of the project
and shared with the Bank team its vision for the sector, as articulated in its various
documents that are mentioned before in this ICR. However, during implementation, the
focus of the Government shifted to the resolution of the Kabul Bank crisis, due to its impact
on the financial sector and, more broadly, on the dialogue between the Afghan authorities
and the international community.
(b) Implementing Agency or Agencies Performance
21
Rating: “Moderately Unsatisfactory”
65. The implementing agency was the DAB, and a Project Implementation Cell (PIC)
comprising all relevant heads of departments in DAB was set up to manage the day-to-day
activities of the project. The idea was to create project implementation capacity within
DAB and more project ownership, unlike the USAID-funded Bearing Point model where
implementation responsibility was with the Bearing Point team. While the PIC had the full
support of the Governor and management of DAB, a risk that was identified during design
was that the staff had no experience in implementing a donor-funded project. The focal
point staff in each DAB department involved in the project was supposed to be partnered
with expatriate consultants for capacity building, and the plan was that over time, the local
staff would take charge of project implementation. As it turned out, with a deteriorating
security environment, it was very difficult to attract well-qualified international staff to
Afghanistan. There was also supposed to be a Project Steering Committee (PSC), chaired
by the Governor or First Deputy Governor, acting as the supreme body to monitor and
make key management decisions for effective implementation of the project.
66. DAB started with some degree of initiative by hiring the Project Director (head of the PIC)
before the project became effective and sending him, together with the head of the
procurement department, to India for World Bank procurement training. However, project
implementation started before the PIC was fully constituted. The international consultants
who were supposed to mentor the focal point staff in the DAB departments were not in
place and it took more than 18 months for the international procurement and financial
management consultants to join the PIC. This limited capacity at the PIC, and the rising
insecurity, resulted in long implementation delays because of the inability to hire qualified
consultants.
67. The PSC was instrumental in addressing the initial problems encountered in the
establishment of the AIBF. However, the difficulties affecting the implementation of
Component One (strengthening the capacity of DAB) were beyond the control of the PSC.
The minimal achievements under Component One largely contributed to the outcome of
the project being rated as “Unsatisfactory”.
(c) Justification of Rating for Overall Borrower performance
Rating: “Moderately Unsatisfactory”
68. Overall Borrower performance is rated as “Moderately Unsatisfactory”. While the
Government showed commitment to the project in the early stages of design and
implementation, the Implementing Agency had difficulties implementing the project, due
design shortcomings and unsuccessful procurement processes, linked to a deteriorating
security environment.
22
6. Lessons Learned
69. In a conflict-afflicted environment, the Project Team should review the general
constraints to implementation faced by ongoing projects in the country’s Bank
Portfolio to better understand the operating environment. Because this was the first
Bank project being implemented by the DAB, it was bound to face capacity constraints.
However, while there were almost two dozen projects in the Bank’s portfolio in
Afghanistan’s other sectors in 2008 (with the oldest project approved in 2003), the design
of the FSSP did not seem to have taken into account the systemic constraints faced by Bank
projects in Afghanistan that could have led the team to incorporate some mitigating
measures in the design. For example, there were seven projects that were at least two years
old but that had minimal or zero disbursements, which could have raised a red flag on the
adequacy of project design and readiness for implementation of the FSSP.
70. Attracting good quality individual international consultants in a conflict environment
is a major constraint to implementation. This is related to the lesson described above on
the operating environment. The project team correctly identified the weak implementation
capacity in DAB and the need as a mitigating measure to hire international consultants to
train/mentor focal point staff with DAB departments and support the activities of the PIC
(such as financial management and procurement). However, nowhere in the PAD is it
acknowledged or mentioned that there could be a problem attracting those consultants to
Afghanistan, as the possibility of a significant deterioration in the security environment
was not considered.
71. Corrective actions need to be taken earlier on in the implementation phase if
Implementation Progress (IP) is consistently “Not Satisfactory”. The delay in taking
corrective actions can lead to loss of resources and time as seen in this project where a
number of contracts had to be advertised at least twice. The major corrective action in the
FSSP should have been taken by the second year of implementation rather than at the Mid-
term Review, which was three and a half years after project effectiveness. As can be seen
in this case, the delay in revising the monitoring and evaluation framework made it difficult
to evaluate the achievements of the project.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/Implementing Agencies Comments
72. The Borrower received and reviewed a draft of the ICR in which the performance of the
Implementing Agency had been rated as Unsatisfactory. The Borrower suggested, with
some justification, that the performance of the Implementing Agency should be rated as
Moderately Unsatisfactory. After internal discussions and consideration, the team agreed
to the Moderately Unsatisfactory rating.
(b) Cofinanciers
23
N/A
(c) Other partners and stakeholders
N/A
24
Annex 1: Project Costs and Financing
(a) Project Cost by Category in XDR
Category Category Description Amount
Allocated
Amount
Disbursed
%
Disbursed 1 Goods, Consultants’ Services, and
Training – Part 1: Component 1
3,870,000 951,947.51 24.6
2 Goods, Consultants’ Services, and
Training – Part 2A: Public Credit Registry
1,090,000 492,433.22 45.2
3 Goods, Consultants’ Services, and
Training – Part 2B: Collateral Registry
310,000 19,891.84 6.4
4 Goods, Consultants’ Services, and
Training – Part 2C: AIFB
170,000 31,204.51 18.4
4 Unallocated 60,000 0.00 0.0
TOTAL 5,500,000 1,495,477.08 27.2
(b) Project Cost by Component (in US$ million)
Component Appraisal
Estimate
Actual/Latest
Estimate
Of which IDA
(at Appraisal)
1. Strengthening the Capacity of DAB 5.70 1.46 5.70
2. Development of necessary financial
infrastructure
3.6610 1.42 2.30
TOTAL PROJECT COST 9.36 2.88 8.00
(c) Financing (in US$ million)
Source of Funds Type of
Cofinancing
Appraisal
Estimate
Actual/ Latest
Estimate
Percentage at
Appraisal
IDA 8.00 2.29 85.5
IFC/PEP-MENA 0.59 0.59 6.3
Counterpart Funding –
DAB, ABA and MISFA
0.77 0.77 8.2
TOTAL 9.36 3.65
10 Includes US$590,000 from IFC for TA for the CR and PCR; and US$770,000 counterpart funding (local funds)
from the Authorities (DAB, ABA and MISFA)
25
(d) Project Disbursements—Original Projections Vs Actual Disbursements
Cumulative Disbursements
26
Annex 2: Outputs by Component
1. The FSSP supported activities for strengthening the capacity of Da Afghanistan Bank
(DAB) as well as for developing necessary infrastructure in the financial sector, such as
the Public Credit Registry (PCR), the Collateral Registry (CR), and the Afghanistan
Institute of Banking and Finance (AIBF). Strengthening the DAB was a focus of the GoA
since the fall of the Taliban regime, and the DAB had previously received assistance from
the World Bank, USAID, and IMF to strengthen its internal administration and bank
supervisory (on-site) capacity. While there had been good progress, DAB still had a
disproportionately weak banking supervision capacity. The GoA also aimed to resolve the
core constraints to lending to the private sector with a specific focus on establishing and
enforcing the realization of collateral, and enhancing credit information flow so as to
identify good and bad customers. The two components under the project and the related
outcome indicators are outlined below.
2. Component 1: Strengthening the Capacity of Da Afghanistan Bank. The FSSP
provided support in three critical areas:
Developing the off-site supervision systems and supervision competencies in DAB;
Creating effective accounting and internal auditing systems that would function at
generally acceptable international standards, which was critical operationally and
for the credibility of DAB as a central bank; and
Establishing an effective human resources (HR) management system so it could
move from relying on expatriate advisors to utilizing well-trained and empowered
Afghan national staff.
3. The following indicators were used to measure progress: (i) decrease in the number of days
required to process supervisory data collected from the commercial banks; (ii) DAB’s
financial statements prepared according to International Financial Reporting Standards
(IFRS) with an “UNQUALIFIED” opinion of external auditor; and (iii) increase in the
number of training courses implemented on the basis of training needs assessment results.
By the time the decision was made to cancel the project at the MTR, the status of
Component One outputs was as follows:
Planned Activity Results and Outputs Completion Status
1. Strengthening of
DAB’s off-site
supervisory functions
Recruitment of a qualified individual consultant with expertise
in banking supervision was unsuccessful. Activities were
included in the scope of the IT consultancy firm. The
consultancy firm’s technical specifications for the automation
of off-site supervision were rejected by the Borrower,
Activity was not
completed and will be
carried out under the
Additional Financing
for the FSRRP. The
27
Planned Activity Results and Outputs Completion Status
following a technical review from the World Bank. Activity
was suspended.
number of days
required to process
supervisory data has
not changed.
2. Strengthening
accounting and
internal audit
capabilities
Accounting:
Accounting policies and procedures manual are in
place
Budget manual, Part 1 and 2
Financial management manual for the FSSP and
FSRRP
Training for manual implementation
Internal audit
Internal audit manual Part 1 (policies and standards)
and Part 2 (audit methodologies)
Internal audit policies
Audit charter
Training and guidance on manuals
Terms of Reference (TOR) for audit committee
Detailed assessment of Comptroller General staff and
on-the-job training of the staff.
Activity was
completed.
3. Establishment of
effective human
resource management
Policies were developed and are being implemented on:
performance management; recruitment, selection, and
appointment; staff training and development; promotion;
conflict of interest; harassment in general; sexual harassment;
grievance and reconciliation; corrective and disciplinary
action; and staff requisition forms.
Activity was partially
completed as the
automation of HR
management was not
carried out under
FSSP, but will be
carried out under
FSRRP, as per the
recommendations of
the Consultant.
Consultant advised a
new IT system was not
needed but instead a
missing module
(attendance module)
could be installed to
customize the HR
Management system in
the existing Core
Banking System.
4. Development of an
effective information
technology system
Assessment of existing IT systems was made
IT development strategic plan and implementation
roadmap were prepared
Technical requirements for off-site supervision
The activity was
partially completed as
technical specifications
for automation of off-
28
Planned Activity Results and Outputs Completion Status
Technical requirements for HR systems automation
Technical requirements for automation of audit
department (the actual automation of audit
department was not covered under the project)
Technical requirements for automation of foreign
exchange auction and daily exchange rate (the actual
automation of foreign exchange auction and daily
exchange rate was not covered under the project)
site supervision were
rejected by the
Borrower and the
procurement phase for
automation of off-site
supervision was
suspended.
4. Component 2. Development of Necessary Infrastructure in the Financial Sector. The
FSSP provided support for:
Setting up a Public Credit Registry that would provide lenders information for
efficient risk assessment on borrowers;
Establishing a Collateral Registry for movable property that would provide lenders
the ability to effectively use their property as collateral; and
Developing a bankers’ training institute that could improve professional banking
and financial sector skills.
5. The following indicators were used to measure progress: (i) increase in the number of credit
reports sent by the Pubic Credit Registry to commercial banks; (ii) increase in the number
of items of collateral registered in the Collateral Registry; and (iii) increase in the number
of commercial banks staff trained at the AIBF. The status of outputs of Component 2 was
as outlined below.
Planned Activity Results and Outputs Completion Status
1. Establishment of a PCR Enabling legislation for operations of a PCR was
put in place
Phase 1 of the PCR (establishing production site)
was launched in December 2013. The PCR
became fully operational in December 2014,
once financial institutions had uploaded all the
required credit information.
Activity was completed
around the time the
cancellation of the project
was proposed. However,
by December 2014, the
PCR had sent out 471
credit reports to
commercial banks.
2. Establishment of a CR Enabling legislation for operations of a CR was
put in place
CR was launched in February 2013 and is fully
operational.
Activity was completed.
By June 2013, the CR had
1700 items of collateral
registered (against a target
of 2,000) valued at AFN
24.8 billion and all
29
Planned Activity Results and Outputs Completion Status
commercial banks had
accounts. By December
2014, the number of
registered items had
increased to 3,000.
3. Physical Development
of the Afghanistan
Institute of Bankers and
Finance (AIBF)
AIBF was established in 2010 and is operational, offering
short term and long term courses.
Activity was completed.
3,064 staff of commercial
banks and microfinance
institutions had been
trained at AIBF by end
June 2014, as against a
target of 500.
30
Annex 3: Economic and Financial Analysis
1. At appraisal, by the nature of the project, it was found difficult to quantify the economic
and financial benefits of the project and therefore difficult to carry out a proper “Cost-
Benefit Analysis“. The team instead carried out a “Business Benefits” review with DAB
management of the investments in four areas, including: (i) internal process efficiency; (ii)
benefits to internal and external clients; (iii) benefits for compliance, regulatory and control
framework; and (iv) work process and manpower efficiency (Annex #9, PAD). The ICR
following the appraisal approach computed “Business Benefits” of achieved activities
under Component 2 (establishment of Afghanistan Institute of Banking and Finance
(AIBF), Public Credit Registry and Collateral Registry). There were virtually no benefits
under Component 1 since all the activities were not completed. The following activities
under Component 2 were also not completed and were transferred to the FSRRP: (i)
support to the establishment of PCR; and (ii) technical assistance and training for the
implementation of a PCR and a CR.
31
Annex 4: Bank Lending and Implementation Support/Supervision Processes
(a) Task Team Members
Names Title Unit Responsibility/Specialty
Lending
Md. Reazul Islam Senior Private Sector
Development Specialist
SASFP 1st Task Team Leader
(TTL)
Kyoo-Won Oh Underwriter SASFP Co-TTL
Nagavalli Annamalai Lead Counsel LEGPS Legal
Kiatchai Sophastienphong Senior Financial Sector Specialist SASFP
Shanthi Divakaran Program officer SASFP
Nazir Ahmad Research Analyst SASFP
Richard Nash Research Analyst SASFP
Shah Nur Quayyum Operations Analyst SASFP
Md. Faijul Islam Information Analyst ISGOS
Sheila Braka Musiime Senior Counsel LEGES Legal
Davis C. Freese Senior Finance Officer LOAFC Disbursements
Mohammad Arif Rasuli Senior Environmental Specialist SASDN Environmental Safeguards
Asta Olesen Senior Social Development
Specialist
SASES Social Safeguards
Kenneth O. Okpara Senior Financial Management
Specialist
SARFM Financial Management
Deepal Fernando Senior procurement Specialist SARPM Procurement
Parwana Wawreena Program Assistant SASFP Administration
Aza A. Rashid Program Assistant SASFP Administration
Marjorie Espiritu Program Assistant SASFP Administration
Thomas James Jacobs Country Officer, Lebanon IFC PCR and CR component
32
Names Title Unit Responsibility/Specialty
Oscar Maddedu Principal Financial Specialist IFC PCR and CR component
Mohammad Amin Shoaieb Program Officer IFC Credit Bureau Program
Murat Sultanov Operations Officer IFC PCR and CR component
Supervision/ICR
Md. Reazul Islam Senior Private Sector
Development Specialist
SASFP Task Team Leader
Kyoo-Won Oh Underwriter SASFP Co-TTL
Richard George Andrew
Nash
Counsel LEG Legal
Kenneth O. Okpara Senior Financial Management
Specialist
SARFM Financial Management
Deepal Fernando Senior Procurement Specialist SARPS Procurement
Parwana Wawreena Nasiri Program Assistant SASFP Administration
Shamsuddin Ahmad Senior Financial Sector Specialist FPDPO
Shah Nur Quayyum Financial Sector Specialist SASFP
Abdel Qadeer Jawad E T Consultant SASFP
Guillemette Sidonie Jaffrin Senior Private Sector
Development Specialist
SASFP 2nd Task Team Leader
Nazir Ahmad Research Analyst SASFP
Ann Christine Rennie Lead Financial Sector Specialist SASFP
Asha Narayan Financial management Specialist SARFM Financial Management
Murat Sultanov Operations Officer IFC (CMEAF) PCR and CR Component
Asif Ali Senior Procurement Specialist SARPS Procurement
Oscar Maddedu Principal Financial Specialist IFC (CAIFI) PCR and CR Component
Aza A. Rashid Program Assistant SASFP Administration
Rahimullah Wardak Procurement Specialist SARPS Procurement
Zohra Farooq Financial Management Specialist SARFM Financial Management
John P. Byamukama Financial Analyst GFMDR ICR TTL
33
Names Title Unit Responsibility/Specialty
Samson Omodele Idahosa E T Consultant SARPS Procurement
Akram Abd El-Aziz Hussein
El-Shorbagi
Senior Financial Management
Specialist
SARFM Financial Management
Shiori Onishi Consultant GFMDR
Bassim Ahmed Sharafeldin Operations Officer GFMDR
(b) Staff Time and Cost
Stage of Project Cycle
Staff Time and Cost (Bank Budget Only)
No. of staff weeks USD Thousands (including
travel and consultant costs)
Lending
FY08 9.14 120.00
FY09 36.42 130.60
Total:
45.56
250.60
Supervision/ICR
FY09 7.35 25.52
FY10 81.60 158.67
FY11 47.70 123.66
FY12 16.51 74.14
FY13 17.53 55.05
FY14 9.66 14.04
FY15 9.36 28.57
Total: 189.71 479.65
Grand Total: 235.27 730.25
34
Annex 5: Beneficiary Survey Results
Not Applicable
35
Annex 6: Stakeholder Workshop Report and Results
Not Applicable
36
Annex 7: Summary of Borrower’s ICR and/or Comments on Draft ICR
The Borrower has provided a comprehensive 72-page ICR and only a summary detailing the
section on evaluation of performance is provided here. The full report is available upon request
and has also been uploaded in the Portal.
AFGHANISTAN FINANCIAL SECTOR STRENGTHENING
PROJECT
IMPLEMENTATION COMPLETION REPORT
To
IDA
FSSP - P110644
October 2014
37
CURRENCY EQUIVALENTS
Currency Unit = US$
ABBREVIATIONS AND ACRONYMS
ABA Afghanistan Banking Association
AIBF Afghanistan Institute of Banking and Finance
ARDS Afghanistan Reconstruction Development Services (part of Ministry of
Economy)
BER Bid Evaluation Report
CBS Core Banking System
CR Collateral Registry
DAB Da Afghanistan Bank
EOI Expression of Interest
FAIDA Financial Access for Investing in the Development of Afghanistan (part of
USAID
FSSP Financial Sector Strengthening Project
FY Fiscal Year
IBRD International Bank for Reconstruction and Development (part of the World
Bank)
IDA International Development Association (part of the World Bank Group)
IFC International Finance Cooperation
IMF International Monetary Fund
IUFR International unaudited Financial Report
MFIs Microfinance Institutions
MISFA Microfinance Investment Support Facility for Afghanistan
MOF Ministry of Finance of Afghanistan
MTR Mid-term Review
NOL No Objection Letter (World Bank Approval)
PAD Project Appraisal Document
PCR Public Credit Registry
PDO Project Development Objective
PIC Project Implementation Cell
PSC Project Steering Committee
RFP Request for Proposal
RFQ Request for Quotation
SDU Special Disbursement Unit (part of Ministry of Finance)
SIR System Integration Review
SPC Special Procurement Committee (a Committee in Ministry of Finance)
TA Technical Assistance
TOR Terms of Reference
UNDB United National Development Business
USAID U.S Agency for International Development
38
Content:
Title Page
DATA SHEET i
B. Key Dates Error! Bookmark not defined.
C. Ratings Summary Error! Bookmark not defined.
D. Sector and Theme Codes Error! Bookmark not defined.
E. Bank Staff Error! Bookmark not defined.
F. Results Framework Analysis Error! Bookmark not defined.
G. Ratings of Project Performance in ISRs Error! Bookmark not defined.
H. Restructuring (if any) Error! Bookmark not defined.
I. Disbursement Profile Error! Bookmark not defined.
1. Project Context, Development Objectives and Design 1
2. Key Factors Affecting Implementation and Outcomes 7
3. Assessment of Outcomes 14
4. Assessment of Risk to Development Outcome 18
5. Assessment of Bank and Borrower Performance 19
6. Lessons Learned 22
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 22
Annex 1: Project Costs and Financing 24
Annex 2: Outputs by Component 26
Annex 3: Economic and Financial Analysis 30
Annex 4: Bank Lending and Implementation Support/Supervision Processes 31
Annex 5: Beneficiary Survey Results 34
Annex 6: Stakeholder Workshop Report and Results 35
Annex 7: Summary of Borrower’s ICR and/or Comments on Draft ICR 36
Basic Data 39
1. Project Performance 42
1.1. Overall Performance 42
1.2. Performance of Consultants, Contractors, and Suppliers 48
2. Performance of DAB and Donor Agency 48
2.1. Performance of DAB 48
2.2. Performance of Donor Agency (IDA) 49
3. Overall Performance and Rating 49
39
4. Challenges, Lessons/Recommendations 50
4.1. Challenges and Recommendations 50
4.2. Lessons: 51
Annex 8: Comments of Co-Financiers and Other Partners/Stakeholders 53
Annex 9: List of Supporting Documents 54
MAP 55
Basic Data
Table 1: Fact Sheet
Original Date: 24 May 209 to 30 Jun
2014
Revised date: 24 May 09 to 31 Dec
2014
DAB Governor: Noorullah Delawari
Project Director: Basharmal Pasarlai,
Previous Director: Zalmei Sherzad
Project Deputy Dir: Samiullah Mahaal
Project ID: P110644
Grant Number H484-AF
Task Team Leader: Guillemette Sidonie Jaffrin
Sectors: Banking 80%, Gen Financial Sector
(20%)
Themes: Other Financial and Private Sector
Recipient: Islamic Republic of Afghanistan
Responsible Agency: Ministry of Finance, Government of Afghanistan
Implementing Agency: Da Afghanistan Bank
Type of Operation: New Operation
Financing type: IDA Grant
Total Amount: US$8,000,000 Implementing Period: 54 months
Effectiveness date: June 18, 2009 Closing Date: 31 December 2014
40
Financing Plan (USD m)
Source Local Foreign Total
IDA - 8.00 8.00
Estimated Disbursements (by the Bank FY/USD Millions)
2010 2011 2012 2013 2014 Total
IDA 1.50 1.50 2.00 2.00 1.00 8.00
41
Table 2: IDA Financing and Project Disbursement by Category of Expenditure
(US$ millions)
Expenditure Category
Amount of
the Grant
Allocations
(US$ m)
Financing
Percentage
(inclusive
of taxes)
Amount of
Grant
Disbursed
(US$ m)
Disburseme
nt
Percentage
(inclusive of
taxes)
(1) Goods, consultants’ services and
training for component 1 5.70 100% 1,413,263.94 24.80%
(2) Goods, consultants’ services and
training for component 2: Public
Credit Registry
1.60 100% 541,921.25 33.87%
(3) Goods, consultants’ services and
training for component 2:
Collateral Registry
0.45 100% 176,812.94 39.29%
(4) Goods, consultants’ services and
training for component 2:
Afghanistan Institute of Banking
and Finance
0.25 100% 184,103.41 73.64%
Bank Charges 325
Total 8.00 2,316,426.54 28.95%
Table 3: Goods, Consultancy Services and Trainings Cost Disbursement by Year:
Category 2010 2011 2012 2013 2014 Total
Goods 43,492.30 - 23,880.04 512,831.25 - 580,203.59
Services 335,227.52 559,201.64 351,439.70 315,834.20 26,613.00 1,587,516.06
Trainings 84,945.00 15,245.89 - 47,391.00 - 148,381.89
Bank Charges 75.00 75.00 75.00 100.00 - 325.00
G. Total 463,739.82 574,522.53 375,394.74 876,156.45 26,613.00 2,316,426.54
42
5. Project Performance
5.1 Overall Performance
The FSS Project management observed the overall performance stated in below table 15. Mid
Term Review report quotes incorporated in the context.
Project Development Objective:
The PDO is to assist DAB to
improve its core function of
banking supervision and regulation,
and to help improve access to
formal banking services by
establishing key initial building
blocks for further financial sector
reform.
The Project has improved access to formal banking
services bound to approved regulations and
establishing key initial financial infrastructure for
further financial reform such as establishment of
Collateral Registry and Public Registry System at
DAB and as well as activation and supported the
Afghanistan Institute of Banking and Finance by
providing technical assistance and equipment.
The Project design has major focus on off-site
supervision automation rather than a feasible
approach of capacity building prior to automation of
the off-site supervision.
In the current design, the project director role was
only a facilitator and Project implementation
maintained by PIC structure in a functional
organization.
0
100000
200000
300000
400000
500000
600000
2009.5 2010 2010.5 2011 2011.5 2012 2012.5 2013 2013.5 2014 2014.5
FSSP
-P
11
06
44
Grant Disbursement on Annual Basis
Goods
Services
Trainings
Bank charges
43
As per the Mid Term Review was conducted by the
World Bank during March 2013. In hindsight, the
PDO indicators have also shown their limits.
“Overall improvement of DAB’s core functions of
banking supervision and regulation as perceived by
the commercial banks through biannual service and
evaluated by the supreme council”.
Since the Kabul Bank crisis, the Central Bank or ABA
has not conducted any survey. In addition, the quality
of banking regulation and supervision should not be
only measured by perception surveys with
commercial banks, as commercial banks might prefer
a more lenient Central Bank, rather than a Central
Bank which strictly enforces laws and regulations.
Component 1:
The Project aims to strengthening
DAB’s capacity through (i)
strengthening of the off-site
supervisory functions of DAB. (ii)
Strengthening of DAB’s accounting
and internal audit capabilities, and
(iii) establishment of an effective
human resource management
system, and (iv) development of an
effective information technology
system.
Since the recruitment of qualified individual
consultant for the preparation of required technical
specification for automation of Off-site supervision
was unsuccessful. In consultation with World Bank,
DAB include banking supervision expertise in the
Term of Reference of the IT consultancy firm (US
Tech Solutions), hired in October 2011 for the
assessment of IT requirements design,
implementation and supervision of IT installations.
Strengthening Accounting Department’s Capacity:
An individual consultant was hired for a year, and the
following key outputs were delivered.
Comprehensive DAB Budget manual in 2 parts
Accounting policies and procedures manual
Financial management manual for both projects
(FSSP and FSRRP)
Training for manual implementation
Strengthening Internal Audit Department’s Capacity:
Individual consultant was hired for almost one and
half year (18 months), and following key outputs
were delivered.
Internal audit manual part I ( policies and
standards) and part II (audit operations and
methodologies)
Internal audit policies
Audit charter
44
Training and guidance on the manuals
Conducted detailed assessment of comptroller
general (CGO) staff, and on the Job training to
CGO staff.
Human Resource Management: Individual
consultant was hired for nine months, and following
policies were delivered and being implemented:
Performance management policy
Recruitment, selection and appointment policy
Staff training and development policy
Promotion policy
Conflict of interest policy
Harassment general policy
Sexual harassment policy
Grievance and reconciliation policy
Corrective and disciplinary action policy
Staff requisition forms
Information Technology: A first procurement process
failed, which led to significant delays for the
implementation of the whole project. The second
procurement process was successful and an IT
consultancy firm (US Tech Solutions) was hired in
October 2011 for the assessment of IT requirements,
design, implementation and supervision of IT
installations. The firm delivered the following key
outputs:
Initial assessment of current IT systems
IT development strategic plan
Implementation roadmap
Proposed IT organization development plan
Technical requirements for off-site supervision
automation
Technical requirements for human resource
systems automation
Technical requirements for foreign exchange
auction and daily exchange rate
Technical requirement for audit department
Assistance in procurement of Public Credit
Registry
Assistance in the HRMS software procurement
process.
45
As discussed above, the World Bank found
unsatisfactory the technical specifications for
automation of Off-site supervision, and it was
recommended not to proceed with the procurement
phase and to review this activity during the Mid Term
Review conducted during March 2013.
Following the assessment was conducted by the IT
firm, it was concluded that a new Information System
for Human Resource Management was not necessary.
Instead, it was deemed sufficient to install missing
modules (attendance module and pension module)
and customize and integrate the HRMS in the existing
Core Banking System (CBS) of DAB.
Component 2: Development of
basic infrastructure in the financial
sector.
Establishment of a public credit
registry
(i) Technical assistance for the
review and drafting of relevant
enabling laws, regulations and
amendments
(ii) Conducting workshops to
explain the benefits of credit
reporting systems
(iii)Acquisition and installation of
physical infrastructure
including software and
hardware development
(iv) Organization of study tours and
workshops to educate relevant
stakeholders on the benefits of
a public credit registry,
A first procurement process failed (bids were non-
compliant) – which led to significant delays. The
second procurement process was ultimately
successful and the contract between DAB and the
selected bidder (Credit Info GmbH) was signed on
February 19, 2013. The first phase (establishing
production site) of the public credit registry was
inaugurated on December 16, 2013 and the Disaster
Recovery Site (DRS) will be completed in 2014.
25% of the contract price was paid under FSSP and
the rest of 75% of the contract amount will be paid
under additional financing to FSRRP.
The IFC has been providing technical assistance to
DAB on this activity.
The PCR technical staffs have attended various
technical trainings/workshops were conducted by IFC
in Dubai and as well as workshops held by the firm.
Establishment of a collateral
registry
(i) technical assistance for the
review and drafting of relevant
enabling laws, procedures,
The contract for the supply and installation of the
(movable) Collateral Registry was signed between
DAB and a firm (Paradigm Application LCC) on June
30, 2011. The Collateral Registry was inaugurated on
February 19, 2103.
46
regulations and amendments
on registration of collateral
(ii) Conducting workshops to
explain the benefits of a
collateral registry
(iii) Acquisition and installation of
physical infrastructure
including software and
hardware development
(iv) Training aimed at building
internal capacity for managing
the registry
(v) Development of a registry
guide and manual
(vi) Conducting workshops to
explain the benefits of a
collateral registry
Similarly, another contract for the supply and
installation of hardware system for the collateral
registry was signed between DAB and a firm (Mega
Plus Afghanistan Ltd). The required hard was
supplied and installed at DAB.
Recently, after inauguration the DAB CR department
has requested for additional functionality of the
Collateral Registry through providing following
features. The proposal has been accepted and will be
funded under additional financing to FSRRP.
Establishment of Disaster Recovery Site (DRS)
for collateral registry
Training of CR staff on complete functional and
technical issues of the software and
Extension of required support and maintenance
for the additional 2 years between the firm and
DAB.
The IFC has provided technical assistance to DAB on
this activity.
The activity supports the establishment of a movable
collateral registry and doesn’t tackle immovable
collateral. The system is operating normally and
thousands of notices being registered.
Supporting the physical
development of the Afghanistan
Institute of Banking and Finance
(AIBF)
(i) technical assistance for the
review and drafting of relevant
enabling laws, procedures,
regulations and amendments
on registration of collateral
(ii) Conducting workshops to
explain the benefits of a
collateral registry
The project supported DAB in establishing the AIBF
in November 2010 for contributing to the capacity
building of the banking and microfinance sector.
Beside FSSP and the Financial Sector Rapid
Response Project (FSRRP), the IFC, HARAKAT and
USAID’s Financial Access for Investing in the
Development of Afghanistan project (FAIDA), has
supported the AIBF and technical assistance provided
to the Institute.
Based on needs, the FSS project has provided
technical assistance and office equipment, furniture,
IT equipment and other goods to the Institute.
A partnership agreement for regional collaboration
was also signed between DAB and a regional
banker’s training institute (Bangladesh Institute of
Banking and Management, BIBM) to support AIBF
47
in training of trainers, provision of training modules,
and curriculum design. The BIBM delivered three
years training curriculum, modules and training
polices. However, the contract was terminated in a
mutual agreement in January 2013, because the scope
of the contract was no longer relevant for AIBF.
The slow project performance is attributed to the following main reasons:
Multiple failed procurement processes which led to significant delays.
It was noticed that it is extremely difficult to hire qualified individual consultants
(with highly technical expertise on financial sector issues and reasonable
remuneration) because of the security context of Afghanistan.
The first procurement of the IT firm also failed because of security consideration
(the winning firm ended up declining the assignment because of the security
context).
The first procurement process for the Public Credit Registry failed as bids were
declared non-compliant.
In hindsight, the project design appears ill adapted to the Afghan context: It was found
in the Mid Term Review that the approach to capacity building through individual
consultants is not effective, which was quoted in the MTR report as follow:
Experience has shown, in Afghanistan, that building sustainable capacity in
institutions require a comprehensive and long term approach, as piloted by the
Capacity Building for Results (CBR) facility – rather than relying on individual
consultants tasked with developing, for example, manuals.
In addition, the scope of Component 1 also appears, in hindsight, over ambitious
considering the limited resources of the project and the capacity building approach
chosen (reliance on individual consultants); strengthening of the off-site
supervision of DAB; strengthening of DAB’s accounting and internal audit
capabilities; establishment of an effective human resource management systems
and development of an effective information technology system.
The above reasons have resulted into low disbursement of IDA grants for FSS project. By
end of the project only 29% of the IDA grant of US$8million had been disbursed after 4
years of project implementation. On the basis of above reasons, the project was highly
proposed for restructuring and closing of the project. On 31st December 2013, the project
was officially closed with a three month grace period to wind up and make all pending
payments. Existing long term (PCR and HR Software) and new contract (Capacity
48
development for Financial Supervision Department of DAB) etc were transferred to FSRRP
with additional financing of US$6.7million.
5.2 Performance of Consultants, Contractors and Suppliers The consultants that were hired under FSS project substantially completed their assignments
and the key outputs delivered by the consultant to the concern department of DAB. The IT
Consultancy firm (US Tech Solutions) has completed 60% of their assignment. The
contractors and supplier of collateral registry (for software Paradigm Application, and for
hardware Mega plus Afghanistan) have completed their assignments and the supplier of public
credit registry (Credit Info) has almost completed implementation of the system and contract,
it is expected that the remaining work would be done under additional financing to FSRRP.
The procurement consultant contract was completed during 2012 and another consultant was
hired in October 2012 under the FSRR project. A list of consultants, contractors and suppliers
is attached as Appendix 6 to the report.
6. Performance of DAB and Donor Agency
6.1 Performance of DAB
The performance of Da Afghanistan Bank in project implementation was satisfactory in
general and DAB had two level monitoring and supervision of the FSS project and the project
has been implemented by DAB through a two tier system of project management, i.e, project
implementation Cell (PIC) and Project Steering Committee (PSC).
Project Implementation Cell (PIC): The PIC was responsible for managing day to day
project implementation. The PIC, led by Project Director, was composed of staffs of the
related department of responsibilities include, inter alia, coordination of project
implementation among the various DAB departments and the PSC, preparation of annual
work plans and budgets, procurement, financial management, and preparation of progress
reports. As per project document each concerned department for the project was nominate
a PIC member with relevant experience. The PIC member was working closely with hired
consultant; provide them with necessary information; attend project implementation
meetings and brief the head of its department on the progress of project implementation.
Capacity within the related department was created in the areas of procurement, financial
management, human resource management, IT and others as required for the project
implementation. The PIC was fully integrated into enhance the effectiveness of the project
implementation.
Project Steering Committee (PSC): The PSC chaired by the Governor and the First
Deputy Governor, and composed of all heads of the related departments, has overseen the
PIC and provide strategic guidance and managerial direction for the project
implementation.
DAB has supported the project in hiring process of the project staffs based on approved
structure by Supreme Council. The salaries of the project staff have been paid by DAB
49
according to its scale. The FSS project operating cost were covered from DAB operating
budget until the FSRR project operating cost was approved by the World Bank in 2012. All
the contracts’ procurements were done by the assigned committees under close supervision of
DAB. The decision body for the project was the PSC led by DAB management. During the
project implementation, several PSC meetings conducted by Steering Committee and the
progress of the project were reported to the committee.
6.2 Performance of Donor Agency (IDA)
The World Bank has provided close support and collaboration in the implementation of the
project in term of reviewing and approval of the procurement plan and as well as training plan
(some trainings on individual basis approved). The Task Team for the project, procurement
unit, and finance unit for the project in the World Bank has provided the close support through
Task Team leadership to the project for financing their activities and solution of the existing
problems.
The procurement processes for goods and consultancy services were closely followed up by
the World Bank and their technical advice were considered and incorporated into the RFPs,
Bid documents, Bid Evaluation Reports and Contracts for goods and services.
The IFRs were reviewed and accepted by the World Bank. The Bank has also audited the FSS
project annually and provided DAB with final observation and recommendations for
improving project implementation process, and also did follow up the progress after
recommendations.
The No Objection for prior review contracts were given on time except some more technical
cases naturally needs more time for review.
7. Overall Performance and Rating
The FSS project most of the activities retained for the rescaled project were late but satisfactory
implemented except automation of off-site supervision. There were significant delays in the
procurement processes of the IT system for PCR and IT consultancy firm due to many reasons,
out of which one is the security threats that were avoiding eligible vendors to join assignments
in Afghanistan.
Since, the procurement process for the prior review contracts were based on International
Competitive Bidding process, therefore the project implementation was slow in disbursement
part and as well as due to many significant delays happened, such as procurement process
failed.
In MTR conducted during March 2013 and by implementing the findings of review, the project
performance was rated on section wise as follow:
a) Procurement Satisfactory
50
b) Financial Management Moderate Satisfactory
c) Counterpart Funding Satisfactory
d) Monitoring and Evaluation Satisfactory
e) Project Management Satisfactory
Furthermore, the M&E results framework is tabulated in page 48
8. Challenges, lessons/ recommendations:
8.1 Challenges and Recommendations
The implementation arrangements of the FSSP were relatively new in Afghanistan. The project
was design with the assumption that the project Director will implement the project with the
full support and collaboration of the Project Implementation Cell (PIC) and Project Steering
Committee (PSC). However, after project kick off, it was very apparent that not all the
implementing partners/members have the same pace and strong institutional capacity to meet
all their targets. Timely procurement was very paramount for the accelerated of project
implementation.
The project faced major challenges in the recruitment of qualified and competent consultants
and contractors. Most of these have to do with the current situation in Afghanistan. There were
few Afghan firms/companies/Individual with the requisite experience to effectively undertake
and complete projects at the required standards. International firms/companies/individual in
most cases were reluctant to come to Kabul and in the case where they choose to come, they
was charging a premium to come. During the course of the project, other major challenges
were encountered which contributed to delay in the project implementation – procurement and
inadequate capacity can be singled out as the biggest challenges. Higher remuneration for staff
that commensurate with their work should be considered. The uncompetitive pay package,
which is not commensurate with the workload, was a major obstacle to maintaining high-level
motivation and retention of professional staff. Training and capacity-building by offering both
long and short term courses can be a very good motivation factors for the limited staff of the
project.
All payments were centralized through the Ministry of Finance. Whilst this was good for
Government control purposes, the “turnaround time” to effect payment is longer that what the
project expect. This challenge was beyond the control of the project team and there was need
for the intervention of higher authorities. As can be seen in the financial figures, there was a
big gap between the commitment amount and the actual amount disbursed.
Other challenges include the followings.
No authority given to the Project Director: Each and every stage of the procurement
process that needs approval or review was forwarded to DAB management for action. The
project director had no authority to approve or sign any document. Even the purchase of
routine items like office stationeries and supplies was forwarded to the management for
51
approval. These arrangements greatly contribute to the delay in procurement. To avoid
such situation it will be a good idea to give some level of authority to the Project Director
by allowing him to handle low value contracts. For example all procurement contracts
below USD50,000 should be handled by the Project Director and only contract above USD
50,000 should be taken to the Governor for signature.
Late involvement of DAB legal Department in the procurement process: All contracts
were referred to DAB Legal Counsel for review before the Governor can take any action.
The argument according to the office of the Governor was that, it is a Government
requirement to have all contracts reviewed by the Legal Department to ensure compliance
with the National Law. Whiles this was a welcoming idea, it usually take weeks before a
feedback can be received from the legal counsel. The lengthy process for legal review
unnecessarily increases the procurement lead time since all contracts were based on World
Bank standard format. It would be better to involve the Legal Department at an earlier stage
in the procurement (as a member of the evaluation team) so that their views can be
incorporated before the contract is finalized. This will ultimately lead to some reduction in
the procurement lead time.
Composition and commitment of the evaluation team: Evaluation team members were
usually the Director of Head of Departments who were extremely busy with their normal
schedule and had little time to attend evaluation meeting. Because they do not have enough
time for evaluation, they usually come to evaluation meeting unprepared and therefore
would not contribute effective. The result was usually a request for another meeting leading
to the delay in completion of the evaluation reports it would be more appropriate to have
the evaluation done by junior or mid-level management staffs that have some knowledge
on what is being evaluated and then present their findings to senior management for
approval.
Bureaucracy procedure for the payment in MoF: The FSS project was responsible to
pay to their vendor by approval of DAB management and through designated account of
Ministry of Finance via its normal procedures (details explained in disbursement/payment
cycle in previous pages), which is a very lengthy and bureaucratic procedure holding strong
role for significant delays in payment to the vendor. Therefore, it would be better that each
project get a specific budget code as other ministries holds, this will help the project to
prepare the allotment (B27) and payment order (M16) by their own and get approval of
signatories at MoF, and payment package will finally submitted to SDU for payment and
check issuance to vendor. In this way, the whole payment process will take only 15 days
as per discussion with other ministries Focal Points.
Late World Bank NoL: The project was not usually receiving WB NoL at due time to
process the activities as planned.
8.2 Lessons:
Several lessons were learnt from the implementation of this project, some of them are
explained as follows:
52
In November 2010, a contract was signed between DAB and Bangladesh Institute of
Banking and Management (BIBM) for the purpose of providing collaboration to the
Afghanistan Institute of Banking and Finance (AIBF) for 3-5 years in term of conducting
training to trainers, provision of training modules, and curriculum design. The BIBM has
delivered training curriculum and modules.
As a result of AIBF Director visit to BIBM during January 2013 and also according to the
evaluation of the performance of BIBM during the past 18 months, it was noticed that the
scope of the contract was no longer relevant for AIBF at the time. It was therefore highly
recommended to terminate the contract and develop a new RFP with a broader and
comprehensive scope whereby a better institute can be attracted to support AIBF. The
contract termination notice to BIBM was shared on February 20, 2013.
However, the project recommends that for such cases of the regional collaboration, a
temporary contract as a pilot study with regional bankers’ institute should take place in
order to determine whether the services offered meets the scope and requirements of the
purchaser.
The second lesson learnt was the practice of allocating additional budget for the contract
of public credit registry. In the project design the allocated cost for public credit registry
was $1.6 million and the actual contract become $2.2 million; therefore in consultation
with World Bank the project decided to suspend the trainings and instead spend the amount
on the actual contract of supply and installation of public credit registry. However, this was
a best practice for successfully implementation of the credit registry. But the project
recommends that during project design the stakeholders should have real picture of the IT
industry along with up-gradations and reasonable value estimation for such activity.
8.3 Special Thanks to DAB Governnor-
8.3.1 H.E. DAB Governor; Noorullah really prioritized project plans and activities.
8.3.2 H.E. DAB Governor; Noorullah was very much committed to the success of the
project.
53
Annex 8: Comments of Cofinanciers and Other Partners/Stakeholders
1. NOT APPLICABLE
54
Annex 9: List of Supporting Documents
1. World Bank: Afghanistan Financial Sector Study; 2004
2. World Bank Interim Strategy Note for Afghanistan; April 2006
3. World Bank Minutes of PCN Review Meeting; April 2008
4. World Bank Minutes of the Decision Meeting; February 2009
5. Implementation Status and Results (ISR) Reports; November 2009 – January 2014:
Sequences 1 to 7
6. World Bank Emergency Project Paper; April 2009
7. World Bank Financing Agreement; April 2009
8. World Bank Supervision Mission Aide Memoires
9. World Bank Mid-term Review Mission Aide Memoire; March 2013
10. World Bank Restructuring Paper on a proposed restructuring of the Afghanistan
Financial Sector Rapid Response Project; November 2013
11. World Bank Restructuring Paper on a proposed restructuring of the Afghanistan
Financial Sector Strengthening Project ; January 2014
12. Afghanistan Financial Sector Strengthening Project: Borrower’s ICR; October 2014
13. The Afghanistan Compact; 2006
14. Afghanistan Enabling Economic Conference (EEC) Road Map; 2007
15. Afghanistan National Development Strategy (ANDS); 2008-2013
16. Public Credit Registry (PCR) Afghanistan – Project Completion Report, March 2015,
IFC
55
MAP
