Download Financial Intermediary Lending

Financial Intermediary Lending
World Bank Safeguards Workshop
May 2013
CATEGORY A
CATEGORY B
CATEGORY C
Env. &
Social
Impact
Risks
CATEGORY FI
Project structure:
• Multiple subprojects - WB
financed by onlending through
a Financial Intermediary
• Subprojects identified/
prepared during project
implementation
• Subprojects can be Category
A, B, C
OP 8.30: Financial Intermediary Lending
WB lending to clients through an FI
FI = Financial entity that makes credit decisions and/or bears credit risk
FI Lending often is in form of a Line of Credit
For Line of Credit: clients (Sub-borrowers) may be: private sector
businesses, households, government entities (including parastatals,
municipalities and other sub-sovereign entities)… have obligation to
repay, regardless of who is intermediating the funds
Activities commonly funded through FIL: industrial and agricultural
enterprises, transport and energy infrastructure, public service
infrastructure
Objectives of Financial Intermediary
Lending
• Support reforms in the financial sector or related real
sectors
• Finance real sector investment needs
• Promote private sector development
• Help stabilize, broaden, and increase efficiency of financial
markets and their allocation of resources and services
• Promote the development of the participating FIs
• Support the country’s poverty reduction objectives
Enables large financial institutions such as WB to support broad economic
development by financing a multitude of small to large scale enterprises
WHICH OPERATIONS WOULD QUALIFY AS FI LENDING?
Small Grants Program for Small
Businesses, implemented by a
Community Development Fund
Category FI
National Development
Bank credit line for
financing private
investment in
renewable energy
production
Category FI
Financing for
Municipality through
Government Municipal
Development Fund for
restoration/upgrading
of six tourism assets
Category B
Eligibility Criteria for FIs
• Adequate profitability, capital and portfolio quality, as
confirmed by audited financial statements
• Appropriate capacity to carry out appraisal and
supervision of loans
• Capacity to mobilize domestic resources
• Adequate managerial autonomy, commerciallyoriented governance, and business procedures
• FIs that do not meet these criteria may participate,
provided that they have an institutional development
plan with time-bound monitorable performance
indicators and a mid-term review of progress
The Challenge of Environmental Quality
Assurance in FI Lending
Multiple sub-projects, multiple sub-borrowers,
multiple sectors, widely scattered,
environmentally/socially sensitive investments
Indirect application of Safeguards through
Environmental and Social Management Frameworks
(and/or use of E & S Systems)
Sub-projects must comply with both national
regulations and WB policies
(OP) 4.01 requires that FILs are subject to the same
rigor by the Bank and the same expectations of
environmental performance in design and
implementation as regular investment projects…
…but WB plays a different role:
World Bank and FI share responsibility for ensuring sub-projects are
carried out in compliance with WB Safeguard Policies
This includes the preparation and implementation of EAs, EMPs and
RAPs for subprojects (as required)
During sub-project supervision the FI:

Is responsible for assessing the capacity of sub-borrowers to comply with EMPs and
more generally to do carry out environmental and social risk management

Performs sub-project site supervision visits to confirm EMP implementation

Consults local environmental authorities for EMP requirements including current
permits

Ensures the sub-borrower carries out required public consultations and does it in
proper way including reviewing minutes of those consultations

Verifies with sub-borrower the overall environmental performance of the investment
including any critical mitigation measure taken and significant environmental
incident

Prepares quarterly/annually reports on results of EMP actions
Responsibilities: Direct Investment Projects
World Bank

Screens and Sets Project EA
Category

Advises Borrower on the Bank’s EA
requirements
Borrower

Prepares and Implements
EA/EMP/EMF in accordance with
national laws and WB OPs

Reviews and gives “No Objection”
for EA reports (Due Diligence
instruments)
Consults project-affected groups and
local NGOs

Discloses draft/final documents in
country

Makes report available in Info shop

Responds to Bank and public

Supervises implementation of
EA/EMP

Monitors implementation of EMP

Ensures compliance under national
laws


Makes mutually agreeable changes
during implementation
Responsibilities: “Intermediated” Projects
World Bank
Assigns SG Category to the overall Project (FI, A, B, C)
Assesses FI capacity to implement SG
Advises FI on on Framework Documents;
Gives No Objection to Framework Documents
Discloses all SG documents in Infoshop and sends to
Board as required
Prior and/or Post-review of EAs/EMPs/RAPs
Supervises implementation together with FI
Contractual relationship
FI (or other Intermediary)
Prepares Framework Documents for the overall
Project (Environmental Management
Framework; Resettlement Policy Framework)
Disclosure and public consultation on
Framework Documents
Screens, categorizes, evaluates, approves and
monitors Sub-projects based on Framework
documents (including ensuring preparation of
acceptable EAs/EMPs; RAPs)
(Sub) Borrower
Prepares EA/EMP, RAP* based on guidance from FI
Disclosure & public consultation of EMP/RAP
Implementation of EMP/RAP* (including selection
of contractors; incorporating EMP in contracts;
ensuring compliance)
*Preparation and/or implementation of RAP
might be responsibility of a Government agency
Institutional Relationships for Safeguards in FI Lending
World Bank
Reporting
Borrower Agency
Guidance, Capacity Building,
Oversight
(e.g. Ministry of Economic
Development)
Accountability,
Reporting
Oversight
Primary Financial Intermediary (First Tier)
Reporting
Guidance, Capacity Building,
Oversight
Participating
Financial Intermediary (Second Tier)
Reporting
Regulatory Authorities
Guidance, Capacity Building,
Oversight
Sub-borrower
Licensing,
monitoring, inspection
Ultimate
implementation
responsibility
Environmental and Social “Due Diligence”
Through Framework Approach
PROJECT LEVEL: ESMF; RPF
SUB-PROJECT LEVEL: EA, EMP, RAP
Prepared and implemented by Project
Implementing Agency (e.g., FI)
Prepared and implemented by Sub-borrower
Sets out basic principles, requirements,
templates, procedures and responsibilities for
preparation, approval and implementation of
sub-project EAs/EMPs , RAPs
WB gives No Objection; Borrower might or
might not formally approve
Disclosure and consultation prior to Project
Appraisal
Subject to Pelosi Amendment if there will be
Category A sub-projects
One public consultation (usually national level)
Referenced in Legal Agreement: Borrower is
ultimately responsible to WB; FI responsible
for day-to-day implementation
WB monitors implementation as part of
regular implementation support
Assesses subproject-specific environmental/social
issues and sets out required mitigation and
monitoring measures
Approval for Borrower prior to subproject
approval (if needed): Government Environmental
Authority
Approval for WB prior to subproject approval:
FI and WB (if ESMF/RPF specifies prior
review)
FI only (if ESMF/RPF specifies post review
Disclosure and consultation prior to subproject
approval
Public consultation at local level (2 for Category A)
Covered indirectly in Legal Agreement through
ESMF/RPF
FI (and WB on spot check basis) monitors
implementation
Environmental and Social Management Framework
 Provides an environmental and social screening process to allow for identification, assessment
and mitigation of potential impacts by proposed works at the time the detailed aspects are known
Provides guidance on process to ensure EAs will be prepared in compliance with national
legislation and OP 4.01
 Serves as guidelines for the development of sub-project/site-specific Environmental
Management Plans (EMPs), Environmental Assessments (EAs), due diligence reports,
environmental audits, etc
May be purely process-oriented or include technical details for likely common types of subprojects
May provide specific guidance regarding preferred or acceptable alternatives (siting, technology,
etc.)
Outlines training and capacity-building arrangements needed to implement the EMF provisions
Is an integral part of the project Operational Manual and applicable to all project investments,
regardless of funding source or implementing agency
SCOPE OF SUB-PROJECTS:
NARROW
VS
BROAD
Substantive ESMF
(including project-wide
EA; generic model
EMPs)
Sometimes use generic
EMP instead of ESMF
Process-oriented ESMF
General criteria, guidance,
Set out processing steps
and accountability
Trade-off:
narrower scope and more substantive ESMF, less PIU/FI
judgement and capacity required
Separate presentation on ESMF
OPTION to APPLY WORLD BANK PERFORMANCE STANDARDS
in PLACE of SAFEGUARD POLICIES
for SOME FIL PROJECTS
Implementation based on use of FI and national environmental and social management
systems (ESMS) instead of ESMF and RPF, defining outcomes to be achieved rather than
procedures to be followed (IFC model)
Applicable only if sub-borrower is a private entity (not public sector) (for mixed projects,
applies only to activities implemented by private sector sub-borrowers)
Responsibilities for identifying, assessing and managing E&S risks must rest solely with
the sub-borrowers
FI must have demonstrated capacity to assess and manage E&S risks associated with the
activities it finances (including assessment of sub-borrower capacity)
Sub-borrowers must have demonstrated capacity to identify, assess and manage E&S risks
associated with the activities to be financed
WB role: review the sub-borrower’s ESMS and ESMPs for consistency with WB
Performance Standards and monitors performance. Interim Guidance Note for WB staff is
under preparation