Dear Ms. Markert / H.E. Governor Hamengku Buwono X / Governor Waluyo:

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1 Public Disclosure Authorized The World Bank 1818 H Street N.W. (202) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS CONFORMED COPY Letter No. CD-051/JRF/II/2011 Public Disclosure Authorized Public Disclosure Authorized Ms. Sabine Markert Country Director GIZ Gesellschaft fuer Internationale Zusammenarbeit GIZ Office Jakarta Menara BCA, 46 th floor Jl. MH Thamrin no.1 Jakarta H.E. Sri Sultan Hamengkubuwono X The Governor of Yogyakarta Special Province Komplek Kepatihan; Jl. Malioboro, Yogyakarta Indonesia. Facsimile : H.E. Bibit Waluyo Governor of Central Java Province Jl. Pahlawan No. 9, Lt. 11/12 Semarang Indonesia Facsimile: Dear Ms. Markert / H.E. Governor Hamengku Buwono X / Governor Waluyo: Re: Grant No. TF IND Indonesia - Java Reconstruction Fund Yogyakarta and Central Java Earthquake: Livelihood Recovery Project Amendment to the Grant Agreement Public Disclosure Authorized We refer to the Grant Agreement for the above-referenced Project (the Project ) among the International Bank for Reconstruction and Development/International Development Association, acting as administrator of grant funds provided by the multi-donor Java Reconstruction Fund (collectively the World Bank ), the GIZ Gesellschaft fuer Internationale Zusammenarbeit, (the Recipient ) and the Republic of Indonesia, represented by the Yogyakarta Special Region and the Central Java Province, dated February 23, 2009, (the Grant Agreement ), which incorporated the Project Performance Indicators. It is known by all parties hereto that the Recipient, formerly called Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH has been renamed as Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH in January We also refer to the Recipient s letter, dated September 28, 2010 requesting the World Bank to increase the available Grant funds to facilitate the implementation of the Project and amend certain relevant section of the Grant Agreement. We further refer to the letters from the Yogyakarta Special Region, dated July 29, 2010 and December 15, 2010 and the Central Java Province, dated September 7, 2010 and December 17, 2010 endorsing the Recipient s request mentioned above.

2 2 of 8 TF The World Bank concurs with this request. Accordingly, the World Bank, the Recipient and the Republic of Indonesia, represented by the Yogyakarta Special Region and the Central Java Province, have agreed to amend the Grant Agreement and the Supplemental Letter as set out below. 1. Section 1.01 of the Grant Agreement is amended as follows to reflect the revised Standard Conditions: The Standard Conditions for Grants Made by the World Bank out of Various Funds, dated July 31, 2010 ( Standard Conditions ) constitute an integral part of this Agreement. 2. Section 3.01 of the Grant Agreement is amended as follows to increase the available Grant funds by five hundred thousand United States Dollars (US$500,000): The World Bank agrees to extend to the Recipient, on the terms and conditions set forth or referred to in this Agreement, a grant in an amount equal to eleven million two hundred fifty five thousand eight hundred United States Dollars ($11,255,800) ( Grant ) to assist in financing the Project. 3. The following sub-paragraphs are added in Section I.A of Schedule 2 (Project Execution) to the Grant Agreement as follows: 3. The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 ( Anti-Corruption Guidelines ), with the modifications set forth in Section II of the Appendix to this Agreement, and the Anti-Corruption Action Plan. 4. (a) The Recipient shall take or cause to be taken all such measures as the World Bank may reasonably request to identify publicly the Donors support for the Project. (b) For the purposes of Section 2.09 of the Standard Conditions, the Recipient shall, upon the World Bank s request, take all measures required on its part to enable the representatives of the Donors to visit any part of the Republic of Indonesia s territory for purposes related to the Project. 4. The Project Performance Indicators mentioned in paragraph 1 of Section II.A of Schedule 2 to the Grant Agreement are amended to read as set out in Annex 1 to this letter of amendment. 5. Paragraph A.1(a) of Section III of Schedule 2 to the Grant Agreement is amended as follows to reflect the revised Consultants and Procurement Guidelines: (a) Section I of the Guidelines for Procurement under IBRD Loans and IDA Credits published by the World Bank in May 2004 and revised in October 2006 and May 2010 ( Procurement Guidelines ), in the case of goods, and Sections I and IV of the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the World Bank in May 2004 and revised in October 2006 and May 2010 ( Consultant Guidelines ), in the case of consultants services; and

3 3 of 8 TF Section IV of Schedule 2 to the Grant Agreement is amended by replacing the table in paragraph 2 of Section IV.A with the following table: Category Amount of the Grant Allocated (expressed in Dollars) Percentage of Expenditures to be Financed (inclusive of Taxes) (1) Credits 4,820, % (2) Consultants Services and Goods 2,702, % (3) Training and Workshops 1,102, % (4) Operating Costs 100% (a) Staff costs (b) Other 1,243, ,400 (5) Overheads 687, % TOTAL AMOUNT 11,255, The following revisions are made in the Appendix to the Grant Agreement: (a) (b) The definitions set out in the Appendix to the Grant Agreement hereby constitute Section I of the Appendix by changing the title of the Appendix from Definitions to Section I. Definitions. A new Section II is added to the Appendix to the Grant Agreement as set out in Annex II to this letter of amendment. 8. In addition to the forgoing amendment, all references throughout the Grant Agreement to Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH shall be deemed to refer to the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. Except as specially amended hereby, all other provisions of the Grant Agreement remain in full force and effect. Please confirm the agreement, on behalf of the Recipient and the Republic of Indonesia, represented by the Yogyakarta Special Region and the Central Java Province to the amendments set forth in this letter of amendment, by signing and dating the form of confirmation set forth below, and returning one fully signed original of this letter of amendment to us. Upon receipt by the World Bank of one of the originals of this letter of amendment duly countersigned by the Recipient and the Republic of Indonesia, represented by the Yogyakarta Special Region and the Central Java Province

4 4 of 8 TF this letter of amendment shall be deemed to have been effective as of the date of countersignature by all parties hereto. Sincerely yours, /s/ Franz Drees-Gross Acting Country Director, Indonesia CONFIRMED: GIZ GESELLSCHAFT FUER INTERNATIONALE ZUSAMMENARBEIT By: /s/ Sabine Markert Authorized Representative Name: Sabine Markert Title: Country Director GIZ Indonesia & Date: February 24, 2011 By: /s/ Ashok Malkarnekar Authorized Representative Name: Ashok Malkarnekar Title: Project Manager/Principal Advisor Date: February 24, 2011 CONFIRMED: YOGYAKARTA SPECIAL REGION By: /s/ Ir. Tri Harjun Ismaji MSc Authorized Representative Name: Ir. Tri Harjun Ismaji MSc Title: Sekretaris Daerah Provinsi DIY Date: March 3, 2011 CONFIRMED: CENTRAL JAVA PROVINCE By: /s/ Dr. Ir. Suprayoga Hadi, MSP Authorized Representative Name: Dr. Ir. Suprayoga Hadi, MSP Title: Director for Special Areas and Disadvantaged Regions Date: June 17, 2011

5 5 of 8 TF Annex 1 PDO Project Outcome Indicators Use of Project Outcome Information Contribute to the efforts of the Government of Indonesia to support the recovery of MSMEs affected by the earthquake to revitalize their businesses and to re-integrate affected low income communities back into economic life. 1) 10,000 assisted MSMEs restore their income to pre-earthquake level 2) 500 debtors/smes re-establish their creditworthiness and the participating BPRs improve their portfolio quality 3) 45 assisted medium-sized enterprises increase employment Determine during the midterm review if project assistance strategies/activities need adjustment. Baseline data collection see below Intermediate Outcomes Component 1 Enhanced MSEs access to finance and/or technical assistance contributes to an increase in their income. Component II Defaulting-loan work out strategies reduce the number of NPLs, increase the capacity of/strengthen MFIs to provide loans, and enhance SMEs access of new finance. Component III Enhanced MEs access to finance linked to technical assistance contributes to increased employment. Intermediate Outcome Indicators 1) At least 60% of 10,000 MSEs increase their net business income 6-12 months after loan disbursement. 1) At least 80% of 500 BPR debtors/smes repay their loans or resume regular loan service and re-establish their credit worthiness. 2) Strengthening BPR: The quality of the earthquakeaffected loan portfolio of assisted BPR improves. 45 assisted medium sized enterprises increase employment (including employment in value chain). Use of Intermediate Outcome Monitoring 1) Project monitoring team conducts income analysis 6-12 months after intervention. 1) Baseline: BPRs report on their loan portfolio when applying for funds from PNM 2) Quarterly BPR report on number of loan recovery proposals. 3) Quarterly BPR report on number of renewed contracts. 4) Loan portfolio quality scoring based on BI s rating system (collectability) of focus BPR 1) Baseline: date of loan disbursement 2) Report from ME/Report from BPR

6 6 of 8 TF Component I, II & III Gender: Training for financial intermediaries integrates creation of awareness for gender issues Sustainability: MFI management capacity building: upgrading of management capacities (including information systems) of the participating MFIs, training workshops for selected non-participating MFIs. Government Capacity building: Training workshops for government officials Component IV Project Management, Monitoring and Evaluation Efficient implementation of the Project Financial intermediaries do not apply discriminative practices when granting loans: * The overall number of female/male credit users is monitored by financial intermediaries. * In case of credits for couples both wife and husband must sign loan application 30% of overall number of credit users is female Management capacities (incl. information systems) of at least 20 MFIs that have obtained refinancing under the Credit Fund have been strengthened. Management capacities of at least 10 MFIs that have not yet been able to access refinancing from the Credit Fund have been strengthened. At least 20 trainings/ workshops involving government officials. Project targets and delivery schedule met. Impact Study delivered. Lessons learned documented. Financial institutions report on number of female/male applicants for credits and actual credit users. Project monitoring team reports on number of training/workshops held for government capacity building. Monitoring overall project progress and specific deliverables to determine efficiency of project coordination. Adjustment made to ensure project targets and milestones are met.

7 7 of 8 TF Appendix to the Grant Agreement Annex 2 A new Section II to the Appendix to the Grant Agreement is added as follows: Section II. Modifications to the Anti-Corruption Guidelines 1. Section 5 is re-numbered as Section 5 (a), and a new Section 5 (b) is added to read as follows: (b) These Guidelines also provide for the sanctions and related actions to be imposed by the Bank on Borrowers (other than the Member Country) and all other individuals or entities who are recipients of Loan proceeds, in the event that the Borrower or the individual or entity has been debarred by another financier as a result of a determination by such financier that the Borrower or the individual or entity has engaged in fraudulent, corrupt, coercive, or collusive practices in connection with the use of the proceeds of a financing made by such financier. 2. Section 11 (a) is modified to read as follows: (a) sanction in accordance with prevailing Bank s sanctions policies and procedures (fn 13) a Borrower (other than a Member Country) (fn 14) or an individual or entity, including (but not limited to) declaring such Borrower, individual or entity ineligible publicly, either indefinitely or for a stated period of time: (i) to be awarded a Bank-financed contract; (ii) to benefit from a Bank-financed contract, financially or otherwise, for example as a sub-contractor; and (iii) to otherwise participate in the preparation or implementation of the project or any other project financed, in whole or in part, by the Bank, if at any time the Bank determines (fn 15) that such Borrower, individual or entity has engaged in corrupt, fraudulent, collusive, coercive, or obstructive practices in connection with the use of loan proceeds, or if another financier with which the Bank has entered into an agreement for the mutual enforcement of debarment decisions has declared such person or entity ineligible to receive proceeds of financings made by such financier or otherwise to participate in the preparation or implementation of any project financed in whole or in part by such financier as a result of a determination by such financier that the Borrower or the individual or entity has engaged in fraudulent, corrupt, coercive, or collusive practices in connection with the use of the proceeds of a financing made by such financier. Footnotes: 13. An individual or entity may be declared ineligible to be awarded a Bank-financed contract upon completion of sanctions proceedings pursuant to the Bank s sanctions policies and procedures, or under the procedures of temporary suspension or early temporary suspension in connection with an ongoing sanctions proceeding, or following a sanction by another financier with whom the Bank has entered into a cross-debarment agreement, as a result of a determination by such financier that the firm or individual has engaged in fraudulent, corrupt, coercive, or collusive practices in connection with the use of the proceeds of a financing made by such financier. 14. Member Country includes officials and employees of the national government or of any of its political or administrative subdivisions, and government-owned enterprises and agencies that are not eligible to bid under paragraph 1.8 (b) of the Procurement Guidelines or participate under paragraph 1.11 (c) of the Consultant Guidelines. 15. The Bank has established a Sanctions Board, and related procedures, for the purpose of making such determinations. The procedures of the Sanctions Board sets forth the full set of sanctions available to the Bank. In addition, the Bank has adopted an internal protocol outlining the process to be followed in implementing debarments by other financiers, and explaining how cross-debarments will be posted on the Bank s website and otherwise be made known to staff and other stakeholders.

8 TF , of 8 February