INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Public Disclosure Copy Report No.: ISDSC5392 Date ISDS Prepared/Updated: 23-Aug-2013 Date ISDS Approved/Disclosed: 11-Nov-2013 I. BASIC INFORMATION A. Basic Project Data Country: Egypt, Arab Republic of Project ID: P146244 Project Name: Micro, Small and Medium Enterprise Development for Inclusive Growth (P146244) Task Team Sahar Ahmed Nasr Leader: Estimated 08-Dec-2013 Estimated 31-Mar-2014 Appraisal Date: Board Date: Managing Unit: MNSF1 Lending Investment Project Financing Instrument: Sector(s): Microfinance (50%), SME Finance (50%) Theme(s): Micro, Small and Medium Enterprise support (60%), Other Financial Sector Development (40%) Financing (In USD Million) Total Project Cost: 300.00 Total Bank Financing: 300.00 Public Disclosure Copy Financing Gap: 0.00 Financing Source Amount Borrower 0.00 International Bank for Reconstruction and Development 300.00 Total 300.00 Environmental F - Financial Intermediary Assessment Category: Is this a No Repeater project? B. Project Objectives The project development objective (PDO) would be to contribute to the improvement and expansion of access to finance for MSEs in Egypt, as well as reaching out to start-ups, using innovative approaches, with a special focus on youth and women. C. Project Description The project is a Financial Intermediary Loan (FIL), line of credit to the Government of Egypt, amounting to US$ 300 million that will be channeled through the SFD—the apex institution, which is mandated to lead and coordinate the MSE development sector in Egypt. SFD would then on-lend Public Disclosure Copy to financial intermediaries that would ultimately reach the end beneficiaries, namely MSEs, as well as start-ups. The foreign exchange risk will be carried by the Government. Numerous innovative mechanisms will be tapped on to enhance access to finance through offering financial products for MSEs (financial leasing, venture capital); designing products that would mitigate the hurdles faced by some enterprises (special products for women); expanding outreach in underserved villages (through post offices); and addressing unmet demands (Islamic finance). All this will contribute to improving financial intermediation, enhancing access to finance for different segments of the society, which will ultimately contribute to the creation of sustainable private sector jobs. Financing mechanisms covered under this project would be as follows: (i) Line of credit through banks. Funds from the line of credit will be channeled through SFD to eligible participating banks that either have an active MSE portfolio, large branch network in the different Governorates, or the willingness and capacity to develop one. The banks will then on-lend to MSEs—the ultimate end beneficiaries. The participating banks could be incentivized through various mechanisms, such as training and capacity building under the MENA MSME Facility. Eligibility criteria and the appraisal of funding proposals from banks will form the basis of selection. (ii) Line of credit for NGOs-MFIs. Funds will be channeled through SFD to eligible participating NGO-MFIs that will then on-lend to micro enterprises. Based on eligibility criteria identified, funding will be focused on high performing, high potential NGO-MFIs. NGOs-MFIs play a crucial role in the development of the marginalized regions through their branch networks in poor villages. Women owned-micro enterprises benefit from such mechanisms, as they account for more than 85 percent of this sector, contributing to women’s economic empowerment, especially in rural areas. (iii) Wholesale microfinance development facility with banks. SFD will set-up financing Public Disclosure Copy facilities with banks, to provide wholesale funding to NGOs-MFIs. Banks would be expected to provide matching funds from their own resources. This would stimulate the growth of more market- based funding for NGOs and MFIs and link microfinance to bank resources. The SFD involvement provides banks with valuable market knowledge and also NGO-MFI assessment techniques. Two banks have already pursued this arrangement with SFD for its knowledge of the microfinance market, and clients’ network. (iv) Line of credit through financial leasing companies. The SFD will channel the funds to the financial leasing companies that will cater to MSEs. This would benefit younger and smaller firms, as well as enterprises that do not have a lengthy credit history or a sufficient asset-base to use as collateral. Leasing can play a critical role in bridging the finance gap and bringing smaller businesses into the formal financial sector. As opposed to other financial instruments, leasing, being an asset- based financing option, also has the added advantage of being an inherently Shari’a-compliant product, which makes it an attractive financial option for enterprises in Egypt with an appetite for Islamic finance. (v) Equity investments—venture capital and angel investors. Venture capital and angel investors are essential financing vehicles to small and young firms that have limited access to banking services. A certain minimal percentage of the proposed operation amount would be channeled through SFD to a financial intermediary (venture capital company or NGO) that would invest in innovative value-adding start-ups, taking the form of matching funds alongside angel investments. This mechanism will cater to young potential entrepreneurs with innovative ideas, yet lack funding to venture into businesses. It will also introduce a new and specialized financing mechanism for start-ups. (vi) Gender-based finance. Designing special financial products and windows for women will Public Disclosure Copy enhance their access to finance, contributing to their economic empowerment. This will benefit from the impact evaluation that is being conducted with the support from the Gender and Development Department. In order to achieve inclusive growth, it is important to target women-owned enterprises through developing new gender-based products, developing special windows for women, especially in marginalized governorates where there are more social and cultural barriers. Banks and NGOs- MFIs networks will be capitalized on to provide financing for women entrepreneurs, especially micro enterprises. (vii) Post office network through NGOs-MFIs. SFD will on-lend to NGOs-MFIs that will tap on the huge branch network of the Egypt Post, which is widespread in the poor villages. The designated financial intermediary (NGO-MFI), as well as, MSEs, will open accounts in the post office, and funds will flow through the post office network from the former to the latter. This mechanism will reduce transaction costs and administrative burdens. More importantly, micro and small borrowers will have enhanced access to finance and better exposure to financial services and markets through dealing with the post office. This mechanism will also encourage saving, in addition to reduction in cash dealing. (viii) Islamic finance. There is demand for Shari’a-compliant products—equity-based financial instruments such as Mudarba and Musharaka—to promote entrepreneurship, share risks, and foster financial intermediation. The project will promote the deepening of MSEs access to Islamic financial products through mainstreaming other risk-sharing non-bank financial services as Ijarah—leasing, as well as micro Takaful–insurance. The provision of Ijarah instruments will reduce business entry costs for startups and strengthen their competitiveness especially during their infancy stage. Moreover, micro Takaful will help with hedging against unanticipated shocks to MSE’s, especially during the startup phase. SFD will on-lend to banks to provide Islamic products to small enterprises, and to SFD-NGOs to reach out to micro enterprises. D. Project location and salient physical characteristics relevant to the safeguard Public Disclosure Copy analysis (if known) E. Borrowers Institutional Capacity for Safeguard Policies F. Environmental and Social Safeguards Specialists on the Team Chaogang Wang (MNSSU) Alaa Ahmed Sarhan (MNSEE) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) Environmental Assessment OP/ Yes BP 4.01 Natural Habitats OP/BP 4.04 No Forests OP/BP 4.36 No Pest Management OP 4.09 No Physical Cultural Resources OP/ No Public Disclosure Copy BP 4.11 Indigenous Peoples OP/BP 4.10 No Involuntary Resettlement OP/BP No 4.12 Safety of Dams OP/BP 4.37 No Projects on International No Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP No 7.60 III. SAFEGUARD PREPARATION PLAN A. Tentative target date for preparing the PAD Stage ISDS: 05-Sep-2013 B. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing1 should be specified in the PAD-stage ISDS: Target date for the Quality Enhancement Review (QER), at which time the PAD-stage ISDS would be prepared: 9/5/2013. For simple projects that will not require a QER, the target date for preparing the PAD-stage ISDS: N/A Time frame for launching and completing the safeguard-related studies that may be needed. 10/7/2013 Public Disclosure Copy IV. APPROVALS Task Team Leader: Name: Sahar Ahmed Nasr Approved By: Regional Safeguards Name: Maged Mahmoud Hamed (RSA) Date: 24-Sep-2013 Coordinator: Sector Manager: Name: Djibrilla Adamou Issa (SM) Date: 11-Nov-2013 1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.