The World Bank Report No: ISR12616 Implementation Status & Results Kyrgyz Republic KG Financial Sector Development Project (P125689) Public Disclosure Copy Operation Name: KG Financial Sector Development Project (P125689) Project Stage: Implementation Seq.No: 4 Status: ARCHIVED Archive Date: 14-Mar-2014 Country: Kyrgyz Republic Approval FY: 2012 Product Line: IBRD/IDA Region: EUROPE AND CENTRAL ASIA Lending Instrument: Specific Investment Loan Implementing Agency(ies): Kyrgyz Post Office, National Bank of the Kyrgyz Republic Key Dates Board Approval Date 08-Mar-2012 Original Closing Date 30-Jun-2017 Planned Mid Term Review Date 30-Jul-2015 Last Archived ISR Date 14-Oct-2013 Effectiveness Date 25-Dec-2013 Revised Closing Date 30-Jun-2018 Actual Mid Term Review Date Project Development Objectives Project Development Objective (from Project Appraisal Document) Project Development Objectives are to: (i) enhance financial sector stability, and (ii) increase access to financial services. Has the Project Development Objective been changed since Board Approval of the Project? Yes No Component(s) Component Name Component Cost Strengthening the legal, regulatory, and supervisory framework for banks, MFOs, and credit unions 1.50 Enhancing financial services via KPOs network 5.55 Modernizing the secured transactions and debt resolution regime 1.00 Project coordination and monitoring 0.80 Overall Ratings Public Disclosure Copy Previous Rating Current Rating Progress towards achievement of PDO Moderately Unsatisfactory Moderately Unsatisfactory Overall Implementation Progress (IP) Moderately Unsatisfactory Moderately Unsatisfactory Overall Risk Rating Substantial Implementation Status Overview This project was successfully declared effective on December 25, 2013 after meeting all the projects effectiveness conditions which included (i) establishing an a Project Coordination Unit for the project; (ii) completing an operations manual, (iii) ratification of the financing agreement and the signing of at least one subsidiary agreement. Thereafter, the first operational mission for the project took place over the period January 20-31, 2014. In support of each component, the team undertook the following activities: Page 1 of 6 The World Bank Report No: ISR12616 COMPONENT 1 (Strengthening the legal, regulatory and supervisory framework): the project commenced work with the national bank on (i) the development of risk-based supervision and regulatory framework in line with Basel standards and best international practice; (ii) strengthening stress-testing capacity; (iii) improving the consumer protection and financial literacy, and (iv) the establishment of an Oversight Function for Credit Reporting Systems and outlined principles and steps towards the definition of appropriate objectives for the designated CRS Oversight authority and minimum institutional arrangements that would be required. Public Disclosure Copy COMPONENT 2 (Access to financial Services): the mission worked on (i) detailing an action plan for the Kyrgyz Post Office’s (KPO) planned reforms for increasing access to finance through the modernization of its branch network. The mission discussed in detail the Terms of Reference for (i) Strengthening Financial Management, (ii) Expanding Financial Services via KPO, and (iii) ICT management. The extensive and in-depth discussions resulted in the preparation of final draft Terms of References as basis for the next steps in the procurement process. In the requirements for the Consultants the emphasis on involving local expertise was given due attention. COMPONENT 3: (Modernizing the movable collateral and debt resolution regimes): The mission held detailed technical consultations with the Central Collateral Registry Office on the next steps towards strengthening the legal framework and the modernizing the on-line registration system of the registry. The following steps were agreed: (i) a local legal consultant (STC) who will work closely with the international consultant that drafted the 2013 Diagnostic Report on Secured Transactions will be hired by mid of March 2014 to prepare draft amendments to the current legislation; (ii) in parallel, in consultation with government, an Interagency Working Group on legal reform comprising state and private sector representatives will be established; and (iii) the World Bank Group team will continue to support the authority’s efforts in reform legal framework for secured transaction. COMPONENT 4 (Project Coordination and monitoring) With respect to fiduciary activities, the mission conducted intensive consultations with the staff of all implementing agencies (Kyrgyz Post Enterprise, National Bank of the Kyrgyz Republic, Central Collateral Registry), ministries (MOF, MOTC, MOJ), and the Project Coordination Unit (PCU) to enhance their readiness and compliance with the World Bank procurement and financial management standards and ensure their current and planned financial management and procurement arrangements to be consistent with the specific project activities and results under each component. The mission reviewed the TORs to address currently needed staffing for the PCU and solve other outstanding administrative issues (facilities and etc.) and noted the progress done by the PCU to prepare for disbursement of the project funds (opening bank accounts, authorization, access to client connection), to update the procurement plan for each component, to establish FSDP budget for 2014, to develop draft regulation on functions and responsibilities of the Steering Committee. The Steering Committee of the project held its meeting on February 6, 2014 and adopted: (i) the regulation defining its functions and responsibilities; (ii) the project budget for 2014; and (iii) the updated procurement plan. Locations Country First Administrative Division Location Planned Actual Kyrgyz Republic Gorod Bishkek Gorod Bishkek ✔ Results Project Development Objective Indicators Public Disclosure Copy Indicator Name Core Unit of Measure Baseline Current End Target Legal, regulatory, and supervisory framework Number Value 0.00 0.00 12.00 following international good practice to Date 01-Dec-2011 21-Feb-2014 30-Jun-2018 enhance stability is developed, adopted, and Comments implemented Number of transactions through KPO related to Number Value 10000000.00 8200000.00 17000000.00 financial services Date 15-Jan-2012 31-Dec-2013 30-Jun-2018 Page 2 of 6 The World Bank Report No: ISR12616 Comments data for 2013 and excluding government payments (e.g., pensions and social benefits) Public Disclosure Copy Number of new annual registrations in the Percentage Value 0.00 20.00 secured transactions registry, using moveable Date 31-Dec-2011 31-Dec-2013 30-Jun-2018 assets as collateral (alone or in combination Comments Number of new registrations Number of new registrations increase with immoveable collateral) in 2011 - 36,000 in 2013 - 50,962 Intermediate Results Indicators Indicator Name Core Unit of Measure Baseline Current End Target Adoption of modern supervision methods Text Value Supervisory framework The implementation mission Implementation of Pillar 2 and lacking modern supervision in January 2014 provided TA 3 of Basel II methods including several workshops on risk based supervision and stress testing. The RBS methodology approach and strategic action plan of transition to RBS were agreed. NBKR has established several working groups to build sustainable capacity and implement transition to RBS and regulatory reforms. Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Comments Upgraded ICT system Text Value No Draft TOR for IT design No incident of supervisory activities is under internal setback for want of IT support. clearance in the NBKR to be submitted to the WB by March 1, 2014. Public Disclosure Copy Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Comments Contingency planning and crisis management Text Value No No changes No systemic crisis that was framework not adequately addressed in time Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Comments According to the agreed plan the WB TA will commence in August 2014 Page 3 of 6 The World Bank Report No: ISR12616 Improved staff capacity, measured in terms of Number Value 2.00 2.00 4.50 number of years of staff experience in Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 supervision departments Comments Public Disclosure Copy Number of ICT-equipped Post Offices (with Number Value 0.00 0.00 360.00 installed, operational front office cash Date 01-Jan-2012 21-Feb-2014 30-Jun-2018 terminals) connected to the central hub Comments Revenues from non-government transactions Percentage Value 15.00 8.60 20.00 as a share of total KPO revenues from financial Date 15-Jan-2012 31-Dec-2013 30-Jun-2018 services Comments Improved quality, reliability and cost-efficiency Text Value 0% 0 >30% of small value payments operations, measured Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 in terms of same day Straight Through Comments Processing as a share of total transactions to&from bank accounts Enhanced transparent financial performance Text Value No No changes Annual audited statements Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Comments Introduction of performance measurement, in Text Value 0 No changes Monthly financial reports terms of accounting reports with separated Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 profitability and risk analysis for financial Comments services and postal services Number of cashiers, tellers, postmasters and Number Value 0.00 0.00 1200.00 other operational staff completed NBKR Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 training to operate financial services at KPO Comments Enhanced competitive outreach for last mile Percentage Value 0.00 0.00 2.00 delivery of remittances, measured in terms of Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 market share of KPO in total remittances Comments Public Disclosure Copy Amended legal framework for moveable Text Value No No Yes collateral and debt resolution regimes Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Comments 2013 Diagnostic Report on Secured Transactions was provided to the Central Collateral Registry and other stakeholders. Issued regulations for the well-functioning of Text Value No No Yes the collateral registry Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Page 4 of 6 The World Bank Report No: ISR12616 Comments The TOR for legal framework activity has been finalized. Procurement is planned in March 2014. Public Disclosure Copy Online system for registering collateral is Text Value No online system No changes Yes operational Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Comments Number of dissemination and capacity-building Number Value 0.00 0.00 6.00 and training events held Date 15-Jan-2012 21-Feb-2014 28-Feb-2017 Comments Increase in lending based on new registration Percentage Value 0.00 20.00 of security interests in the registry, using Date 15-Jan-2012 05-Oct-2012 28-Feb-2017 moveable assets as collateral Comments To be measured at end-2011 N/A, the Registry does not increase collect such data Increase in the debt recovery rate for creditors Text Value To be measured at end-2011 30 cents on the dollar of 4% of insolvent companies Date 15-Jan-2012 30-Jun-2018 Comments N/A, the Registry does not collect such data Volume of Bank Support: Enabling Amount(USD) Value 0.00 0.00 0.00 Environment - SME Date 15-Jan-2012 21-Feb-2014 30-Jun-2018 Comments Data on Financial Performance (as of 09-Jan-2014) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P125689 IDA-50670 Effective 08-Mar-2012 11-Jul-2013 25-Dec-2013 30-Jun-2017 30-Jun-2018 Public Disclosure Copy P125689 IDA-H7600 Effective 08-Mar-2012 11-Jul-2013 25-Dec-2013 30-Jun-2017 30-Jun-2018 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P125689 IDA-50670 Effective XDR 2.62 2.62 0.00 0.00 2.62 0.00 P125689 IDA-H7600 Effective XDR 3.28 3.28 0.00 0.00 3.28 0.00 Disbursement Graph Page 5 of 6 The World Bank Report No: ISR12616 Public Disclosure Copy Key Decisions Regarding Implementation The FSDP was declared effective on December 25, 2013. The first project implementation support mission was undertaken over the period January 20-31, 2014 and noted the progress that beneficiary institutions had undertaken in preparation for enhanced proejct implementation. Administratively, efforts were made to ensure that systems were in place to fully execute the fiduciary responsibilities and legal covenants for the project. The next implementation support mission is planned for April 2014. Restructuring History Board/AOB Decision on 21-May-2013 Related Projects There are no related projects. Public Disclosure Copy Page 6 of 6