United Nations Development Programme Country: Lebanon Project Document

Transcription

1 United Nations Development Programme Country: Lebanon Project Document Project Title: Access to Credits for Local Economic Development in Poor Areas UNDAF Outcome 4: By 2014, access of vulnerable groups to sustainable livelihood opportunities and basic social services are improved and regional disparities reduced National priority: Increased growth performance and improvement of social indicators including employment creation and the reduction of regional inequalities Expected CP Outcome(s): Poverty and Social Development CP Outcome 2: Local governance structures in target under-served regions strengthened for better representation, participation, and basic local services delivery CP Output 2.3: Capacities and access of local entrepreneurs and SMEs (mainly in poor regions) enhanced for income generating activities and support to livelihoods development Expected Output(s): 1. Access to credits increased for SMEs in Bekaa, BSS, South and North Lebanon Responsible party UNDP Implementing Agencies: CDR/ESFD The project s aim is to establish a Guarantee Fund for increasing the opportunities of access to credit for micro, small and medium enterprises and business cooperatives, identified by UNDP AGL and later by the LEDAs. Its main objective is to contribute to local economic development as an attempt for poverty alleviation and inclusive participation of local communities in their well-being. The project is linked to the UNDP ART GOLD Programme which supports the local actors in sharing comprehensive territorial development strategy in order to decrease the risks of business failures. This approach is based upon the identification of strategic market areas and consequent prioritization at sectoral and territorial level for the optimum utilization of the local resources, business growth, easy access to credit (small and medium loans), capacity development, and territorial marketing strategies. In order to achieve these objectives UNDP AGL is establishing Local Economic Development Agencies (LEDAs) in each area of the Programme, which will provide the necessary and permanent support to the above mentioned development strategy. CDR, through the Economic and Social Fund for Development will be the national implementing agent of this component, particularly for the establishment of the Guarantee Fund at one national bank and further on for the management of the this agreement aiming at enabling the local SMEs and cooperatives to have easy access to credits for their business development. Key Result Area (Strategic Plan): Poverty reduction Total resources required 2,500,000 USD and achievement of the MDGs Total allocated resources: 1,611,231 USD Atlas Award ID: Government of Belgium: 530,000USD Start date: December 2009 Government of Italy: 450,000 USD End Date December 2011 Brief Description Lebanon Recovery Fund: 520,000USD Total Direct & Indirect Cost: 111,231 USD Agreed by CDR Agreed by UNDP

2 I. SITUATION ANALYSIS UNDP ART GOLD Lebanon Programme (AGL) operates in the marginalized areas of North Lebanon, South Lebanon, Beirut Southern Suburbs (BSS), and the Bekaa, in line with the Government s National Priorities and interest expressed by partners and donors. UNDP AGL was launched in March 2007 in the above areas of the country, characterized by high poverty rates and raging socioeconomic problems. The Programme is based on a cooperation framework between local, national and international partners interested in combining and coordinating their efforts to achieve the Millennium Development Goals (MDGs) and to contribute to local governance, decentralization, and balanced socio-economic development in the medium and long term. It supports the implementation of medium and long-term projects in social, environment and local economic development. These projects are developed and implemented in a participatory approach involving local and regional working groups. The Local Economic Development component is vital for reducing poverty and increasing access of the deprived communities to jobs and businesses. Job creation and improving business performance in the marginal areas of Lebanon requires comprehensive support including optimum exploitation of local resources, providing access to credits to SMEs, providing technical assistance to entrepreneurs, and establishing proper market linkages. UNDP ART GOLD Programme is supporting the establishment of Local Economic Development Agencies (LEDAs), as self sustainable tool for providing access to credits to vulnerable groups within a set territory. The UN experience in many countries, since 1991, shows that this scheme has been successful in implementation. Almost 60 LEDAs were created within the framework of Human Development programs in Asia, Latin America, Africa, and East Europe; the majority of which are still operating autonomously in efficient manner. One of the most important aspects of this experience is the link between the financial and non financial services provided. As such, this proposed mechanism will largely contribute to the development of the territory at various levels, not only based on the market opportunities but also related to the potential local resources. Pending the set up of the legal framework for the LEDAs in Lebanon, UNDP/AGL will establish Local Economic Development Offices (LEDOs) in the 4 territories. The LEDOs will provide capacity building for the SMEs in the 4 territories and will assist them in business development, territorial marketing strategies and access to credits. This will maximise the chances for new sustainable business, jobs and income, specifically for the most disadvantaged people, and helps addressing the MDGs and Human Development. 2

3 II. STRATEGY The Guarantee Fund is a mechanism for channelling funds to micro, small and medium enterprises and business cooperatives, identified by UNDP/AGL and later by the LEDAs when operational, and will provide them with access to the local banking system in the four designated areas. The goal of the Guarantee Fund is to enhance human development and contribute to the fight against poverty and exclusion, through allowing the establishment and the growth of micro and small businesses in the framework of a territorial development strategy. Within this framework, the UNDP/AGL Guarantee Fund approach should be included into the comprehensive strategy for the sustainable development of the territory and ultimately should be locally managed and monitored by the Local Economic Development Agencies in support to the lending Banks. Given that the establishment of the LEDAs is a long process and requires setting the proper legal framework, all processes related to the support to SMEs foreseen within this future structure will be carried out by the UNDP/AGL staff and the Local Economic Development Offices at the interim. In order to facilitate the access of the disadvantaged and vulnerable people and entrepreneurs (lacking the capacity and the conditions to apply for conventional loans) to the financial market, and with the aim to re-establish normal conditions for economic growth and job creation and strengthen local managerial and delivery capacities in the social and economic sectors, UNDP/AGL will collaborate with Economic and Social Fund for Development (ESFD), an autonomous department directly attached to the Council for Development and Reconstruction (CDR), for the establishment of the Guarantee Fund. ESFD mission is to alleviate poverty and mitigate the social impact of the economic transition in Lebanon on marginalized and disadvantaged groups. It aims at creating job opportunities through the provision of small and micro-credit to SMEs through commercial banks; as well as improving access, distribution and quality of social services to deprived communities. 3

4 III. RESULTS AND RESOURCES FRAMEWORK Intended Outcome as stated in the Country Programme Results and Resource Framework: CP Outcome 2: Local governance structures in target under-served regions strengthened for better representation, participation, and basic local services delivery CP Output 2.3: Capacities and access of local entrepreneurs and SMEs (mainly in poor regions) enhanced for income generating activities and support to livelihoods development Outcome indicators as stated in the Country Programme Results and Resources Framework, including baseline and targets: Outcome indicator 2: Number of public-private partnerships formed for poverty reduction Output indicators: 2.3.1: Number of new jobs created 2.3.2: Number of economic development initiatives supported 2.3.3: Number of unskilled poor benefiting from training Applicable Key Result Area (from Strategic Plan): Poverty reduction and achievement of the MDGs Partnership Strategy. The project will be implemented through CDR/ESFD Project title and ID (ATLAS Award ID): Access to Credits for Local Economic Development in poor areas INTENDED OUTPUTS OUTPUT TARGETS FOR (YEARS) INDICATIVE ACTIVITIES RESPONSIBLE PARTIES INPUTS Output 1: Access to credits increased for SMEs in Bekaa, BSS, South and North Lebanon Baseline: SMEs have limited access to credits in the 4 UNDP/AGL territories Indicators: - Agreement between CDR/ESFD and the Lebanese Bank established - Credits provided to SMEs by the bank in the 4 UNDP/AGL territories Targets: - Agreement between CDR/ESFD and the bank approved by UNDP and signed before the end of Feb At least 7,000,000 USD credits provided to SMEs in the 4 territories (year 1) - At least 10,000,000 USD credits provided to SMEs in the 4 territories (year 2) Activity Result 1: A Guarantee Fund established in a National Bank, with the aim of providing access to credits to SMEs within the framework of the UNDP-ART GOLD Programme 1.1. Agreement between CDR/ESFD and the Bank for the establishment of the Guarantee Fund and the credit scheme 1.2. Transfer of fund to the Lebanese Bank for credit delivery UNDP, CDR/ESFD, and the Bank CDR/ESFD and the Lebanese Bank, through an agreement for managing the GF, according to the Project Document CDR/ESFD 1,500,000 USD transferred to CDR/ESFD for the establishment of the Guarantee Fund (year 1) 1,000,000 USD transferred pending availability of fund from donors (year 2)

5 1.3. Select business ideas and provide technical assistance to the beneficiaries for the elaboration of the business plans UNDP/AGL 1.4. Issue loans to the clients under separate individual loan agreements to be entered into between the BANK and the Clients Activity Result 2: Monitoring and evaluation of the results 2.1. Establishment and convening of a Guarantee Management Committee UNDP, CDR/ESFD, and the Bank UNDP, CDR/ESFD, and the Bank 2.2. Quarterly evaluation reports on the progress and impact of the enterprise development finance components UNDP/AGL 2.3. Mid Term review of the project 12 months after commencement reviewing the performance of loans, the Guarantee Facility and the deposit of funds 2.4. Monthly financial report 2.5. Quarterly financial report ESFD/CDR 5

6 IV. ANNUAL WORK PLAN Year: 2010 EXPECTED OUTPUTS And baseline, indicators including annual targets PLANNED ACTIVITIES List activity results and associated actions TIMEFRAME PLANNED BUDGET RESPONSIBLE PARTY Q1 Q2 Q3 Q4 Funding Source Budget Description Amount Output 1: Access to credits increased for SMEs in Bekaa, BSS, South and North Lebanon Baseline: SMEs have limited access to credits in the 4 UNDP/AGL territories Activity Result 1: A Guarantee Fund established in a National Bank, with the aim of providing access to credits to SMEs within the framework of the UNDP- ART GOLD Programme UNDP, CDR/ESFD, and the Bank UNDP/AGL ,500,000 USD Indicators: - Agreement between CDR/ESFD and the Lebanese Bank established - Credits provided to SMEs by the bank in the 4 UNDP/AGL territories Targets: - At least 7,000,000 USD 1.1. Agreement between CDR/ESFD and the Bank for the establishment of the Guarantee Fund and the credit scheme CDR/ESFD and the Lebanese Bank, through an agreement for managing the GF, according to the Project Document 6

7 credits provided to SMEs in the 4 territories (year 1) - At least 10,000,000 USD credits provided to SMEs in the 4 territories (year 2) 1.2. Transfer of fund to the Lebanese Bank for credit delivery CDR/ESFD 1.3. Select business ideas and provide technical assistance to the beneficiaries for the elaboration of the business plans UNDP/AGL 1.4. Issue loans to the clients under separate individual loan agreements to be entered into between the BANK and the Clients Activity Result 2: Monitoring and evaluation of the results UNDP, CDR/ESFD, and the Bank 2.1. Establishment and convening of a Credit Committee (CRC) UNDP, CDR/ESFD, and the Bank 7

8 2.2. Quarterly evaluation reports on the progress and impact of the enterprise development finance components UNDP/AGL 2.3. Mid Term review of the project 12 months after commencement reviewing the performance of loans, the Guarantee Facility and the deposit of funds 2.4. Monthly financial report 2.5. Quarterly financial report CDR/ESFD TOTAL 1,500,000 8

9 Year: 2011 EXPECTED OUTPUTS And baseline, indicators including annual targets PLANNED ACTIVITIES List activity results and associated actions TIMEFRAME PLANNED BUDGET RESPONSIBLE PARTY Q1 Q2 Q3 Q4 Funding Source Budget Description Amount Output 1: Access to credits increased for SMEs in Bekaa, BSS, South and North Lebanon Baseline: SMEs have limited access to credits in the 4 UNDP/AGL territories Activity Result 1: A Guarantee Fund established in a National Bank, with the aim of providing access to credits to SMEs within the framework of the UNDP- ART GOLD Programme UNDP, CDR/ESFD, and the Bank UNDP/AGL ,000,000 USD (pending availability of fund from donors) Indicators: - Agreement between CDR/ESFD and the Lebanese Bank established - Credits provided to SMEs by the bank in the 4 UNDP/AGL territories Targets: - At least 7,000,000 USD credits provided to SMEs in the 4 territories (year 1) - At least 10,000,000 USD credits provided to SMEs in the 4 territories (year 2) 1.1. Agreement between CDR/ESFD and the Bank for the establishment of the Guarantee Fund and the credit scheme 1.2. Transfer of fund to the Lebanese Bank for credit delivery CDR/ESFD and the Lebanese Bank, through an agreement for managing the GF, according to the Project Document CDR/ESFD 9

10 1.3. Select business ideas and provide technical assistance to the beneficiaries for the elaboration of the business plans UNDP/AGL 1.4. Issue loans to the clients under separate individual loan agreements to be entered into between the BANK and the Clients Activity Result 2: Monitoring and evaluation of the results UNDP, CDR/ESFD, and the Bank 2.1. Establishment and convening of a Guarantee Management Committee UNDP, CDR/ESFD, and the Bank 2.2. Quarterly evaluation reports on the progress and impact of the enterprise development finance components UNDP/AGL 10

11 2.3. Mid Term review of the project 12 months after commencement reviewing the performance of loans, the Guarantee Facility and the deposit of funds 2.4. Monthly financial report 2.5. Quarterly financial report CDR/ESFD TOTAL 1,000,000 11

12 V. MANAGEMENT ARRANGEMENTS Credit Committee (CRC): A joint Credit Committee will be established as a mechanism for deciding upon the level of guarantee for pre-identified beneficiaries (pre-identified by UNDP/AGL staff and/or LEDA). The CRC will also facilitate sharing of information, documentation, and taking decisions on claims. 1. Composition of CRC: 1.1 The Credit Committee shall be composed of the following members: - A representative of UNDP/AGL, assigned by the UNDP/AGL Chief Technical Adviser; - A representative of the BANK, assigned by its General Manager or Executive Board; - A representative of CDR/ESFD, assigned by ESFD Managing Director 1.2 The Committee shall nominate a Secretary among the members; the Secretary holds office for six (6) months term. The Secretary shall call for meetings, prepare the relevant documentation and send it to the members, draft the minutes, and more generally co-ordinate and ensure proper communication among the Members. 2. Internal Rules: Once it is established, the CRC shall establish its internal rules and procedure. 3. Meetings: The meetings of the CRC should be convened at least once per month. An invitation letter will be sent to the members at least 7 days in advance. The letter of invitation shall indicate the day, time, place and agenda of the meeting. 4. Decisions: 4.1 All decisions of the Committee shall be taken unanimously and in writing. The BANK, CDR/ESFD and UNDP/AGL members shall attend the meetings. 4.2 CRC may approve, reject or suspend a decision on guarantee cover. shall have the final say in any loan approval as the bank is the provider of credits. 5. Scope of Review: More particularly CRC shall have the following tasks: a. Select by unanimous decision and approve the guarantee cover; b. shall be solely responsible for the approval of the loan using its normal credit appraisal techniques based on cash flow analysis; c. Approve by unanimous decision the conditions of the guarantee (proportion to be secured respectively by the Guarantee Fund and by the client as collateral); d. Propose modifications concerning the Operational Rules considered necessary to improve the functioning of the Guarantee Fund; e. Request an inspection or audit on the management of the financial resources, whenever it is considered necessary;

13 f. Prepare and submit to the parties an annual evaluation report on the progress and the impact of the credit scheme under the Guarantee Fund; g. Ensure overall coordination between the Parties. UNDP/Art Gold (AGL) shall: 1. Transfer funds to CDR/ESFD; the initial instalment will be approximately one million five hundred thousand US Dollars. Additional resources will be deposited to the GF in the future, according to the AG donors disbursements; 2. Inform the Beneficiaries of UNDP/AGL, about the terms and conditions to access the loans in order to ensure the best possible use of the financial resources; 3. Select business ideas and provide technical assistance to the beneficiaries for the elaboration of the business plans; 4. Develop complete file: Feasibility study, cash flow, application (UNDP/AGL LEDO officers); 5. Defend the file in the GF committee; 6. Hand over to CDR/ESFD the beneficiaries documents required by the bank; 7. Undergo post-loan follow up (UNDP/AGL LEDO officers): Inform CDR/ESFD, CRC and the BANK about any misuse, deviation or problems concerning the loans; 8. Monitor that UNDP/Art Gold conditions towards achieving the objectives are met; 9. Prepare and submit to the Parties quarterly evaluation reports on the progress and impact of the enterprise development finance components; 10. Monitor and audit the GF management component of CDR/ESFD; 11. Be the owner of the Funds. Based on the performance of the GF and for the sake of its sustainability, UNDP might consider, in case LEDAs are not established by the end of this PD duration, transferring the funds to CDR/ESFD for the purpose of maintaining the current objectives of the GF. CDR/ESFD shall: 1. Agree that UNDP/AGL contributions in the GF be used as collateral to Loans issued by the BANK to Clients for the purpose of financing enterprise development projects identified and presented by the UNDP/AGL staff and/or LEDA once established 2. Contract the selected bank (see below paragraph on Bank Selection) as executer; this contract should be approved in writing by UNDP and shall include the following closures: a. The bank will administer the GF with due care, maintain clear, accurate and complete records with respect to the Deposit received from UNDP/AGL under this Project Document, and ensure overall management and accountability for the use of all the financial resources; b. Following the financial deposit of the GF, the BANK shall issue Loans to the Clients from its own resources under separate individual loan agreements to be entered into between the BANK and the Clients; c. Preference will be given to business proposals in the designated areas according to sectoral, social, and environmental criteria established by the ART/GOLD Programme, prioritizing the most disadvantaged part of the population and the sectors included in the strategic territorial development plans; d. The targeted population would include people with low income, women, disabled, unemployed, and people living in deprived areas, small entrepreneurs, small farmers and artisans; e. The bank will evaluate the proposed business plans and interview the clients and will organize joint field visits with UNDP/AGL; 13

14 f. After the evaluation, the business plan will be approved or rejected by the Bank which will identify any shortfall in collateral. The approved loans will be submitted to CRC for approval of the guarantee cover; g. The loan contracts will be signed between the Bank and the Beneficiaries; h. The bank should use the GF solely for the purpose of providing collateral for Loans issued to Eligible Clients; i. The bank will participate in the CRC and share an advanced copy of the standard form for loan applications with the CRC Members; j. Issue loans following its own mechanisms of loan approval through its headquarters, branches or local corresponding Banks, as determined by the Bank; k. Submit to CRC all loans approved by the Bank for the Committee to agree on the level of collaterals from the Guarantee Fund; l. Submit to CDR/ESFD and UNDP/AGL a monthly financial report on the status of the GF and a monthly progress report on the performance of the Loans disbursed with the rate of reimbursement; m. Facilitate the inspection of accounts, at any time, of the GF by any person/organization authorized by CDR/ESFD and UNDP/AGL; n. Conduct an external audit on the use of the funds annually, as part of its normal function or upon request of CDR/ESFD; and send a copy to the CRC members for comments as necessary; o. Disseminate through its normal channels of media-communication, information concerning the successful achievements of the lending programme. There should be no publicity concerning the Guarantee at any time from any source to avoid moral hazard; p. Assign a representative responsible for the follow-up of the GF scheme and monitoring of loans as member of CRC and designate focal points at the four branch offices; q. In the absence of sufficient branches in a project area, the Bank agrees that Bank branch staff shall visit those areas for the purpose of meeting with potential clients, and shall arrange a system through Western Union or Liban Post for the repayment of instalments; r. The bank shall prepare a Mid Term review of the project 12 months after commencement reviewing the performance of loans, the Guarantee Facility and the deposit of funds; s. In case of loan defaults, the loan recovery process will be followed up by the Bank and UNDP/AGL staff and/or LEDO/LEDA. If all the joint efforts for recovery fail, the loan file shall be passed to the Bank legal department which will apply the legal procedure as per Lebanese Law, and claims against the guarantee shall be made by the Bank; t. The BANK shall be solely liable for claims by third parties arising from the BANK s acts or omissions in the course of performing this Agreement and under no circumstances shall UNDP/AGL or CDR/ESFD be held liable for such claims by third Parties. Therefore the Bank has to have final credit decision. 3. Open GF account in the selected bank for the deposit of the principal of the Guarantee in US Dollars; 4. Transfer the Guarantee fund to this account in the selected bank within 1 month period after the receiving the fund from UNDP; 5. Be responsible for the operations and management of the GF; 6. Agree to transfer the Interests and other incomes generated by the GF to a special saving account; 7. Use part of the interest on the GF to cover CDR/ESFD operational costs: The annual interest on the GF will be used for losses incurred due to the recovery of the GF from the outstanding loans; the remaining amount resulting from the interest on GF will be used by CDR/ESFD for covering operational costs; 8. Monitor and audit the contracted Bank; 9. Coordinate with and support local business development officers of the UNDP/AGL LEDOs; 10. Recommend to UNDP changes and refinements and seek approval; 11. Report progress to UNDP/AGL; 14

15 ESFD, represented by the CDR President, has extensive experience in providing loans to micro and small entrepreneurs and has full capacity and knowledge for implementing the subject project Bank Selection: Procurement Process: An RFP was posted on UNDP Lebanon, UNDP and UNGM Websites for 29 days. Only two bidders submitted their proposals within the deadline and both proposals submitted were considered responsive proposals after passing the minimum technical score of 70%. Evaluation: The proposal submitted by First National Bank s.a.l. received the highest financial score. Value for Money: First National Bank s.a.l. proposed the highest percentage per annum for the amount of the interest provided by the bank for the Guarantee Fund deposit. Furthermore, First National Bank s.a.l. proposed the lowest percentage per annum for the amount of the interest charged to the clients for the loans as well as no fees to be charged to the clients for the loans. 15

16 ANNEX 1 OPERATIONAL RULES A. FINANCIAL RULES OF THE GUARANTEE FUND Financial resources 1. The initial instalment will be of approximately and not less than 1,500,000 USD (one million five hundred thousand US Dollars). Additional resources will be deposited on the GF in the future, according to the UNDP/AGL donors disbursements. 2. Following the financial deposit of the GF, the BANK shall issue Loans to the Clients from its own resources under separate individual loan agreements, including the repayment schedule, to be entered into between the BANK and the Clients. Investment of the guarantee fund 3. The GF shall yield an interest rate of approximately 4.5 % (four point five per cent). Interest earned on the respective deposits will be credited to the special saving account of the GF. The annual interest on the GF will be used for losses incurred due to the recovery of the GF from the outstanding loans; the remaining amount resulting from the interest will be used by CDR/ESFD for covering operational costs. Amount of the credit disbursed as covered by GF 4. The total amount of credit disbursed will depend on the number of acceptable loan applications prepared and provided by UNDP/AGL. will leverage the GF up to 7.5:1, i.e. US$ 2.5 million*7.5. Further assuming risk sharing to average 70% this figure can be increased to US$ 2.5 million * 7.5/0.7 = US$ million. The bank will deal with a large number of loans and constraining factor will be the number of loan applications submitted by the UNDP/AGL. Leverage of 7.5 is subject to portfolio remaining of high quality. The risk coverage of the GF will vary from client to client depending on the value of the collateral that the borrower can provide. Interest charged to the clients 5. The amount of the interest charged to the clients by the Bank (FNB) for the loans is approximately 8.75 % (eight point seventy five per cent). 6. When lending is in Lebanese Pounds then the interest rate will be higher by the difference in costs of funds to the Bank between deposits in LBP and USD. However, the bank is willing to request from BDL an exemption from the legal reserves for loans denominated in Lebanese Pounds. This will allow the bank to convey part of the advantage to borrowers. If the BDL accepts the exemption of legal reserves for LBP lending, then a contract addendum to reflect the above will be formalized between CDR/ESFD and the Bank and approved by UNDP. Fees 7. The amount of fees charged by the Bank (FNB) to the clients for the loans is 0 (zero). Loan Conditions 8. This Bank shall grant loans from a minimum amount of US$ 10,000 (ten thousand US Dollars) to a maximum amount of US$ 100,000 (one hundred thousand US Dollars) per enterprise / loan). 9. Conditions on repayment instalments of principal and interest and grace period shall be established by the BANK, in accordance with the monetary standards of the Central Bank of Lebanon. The cash flow determines the grace period, instalment size and amount of loan all of which should be determined by the Bank. B. GUARANTEES AND COLLATERALS 1. UNDP/AGL contributions to the GF shall only be used as collateral for Loans issued by the BANK 16

17 to Clients for the purpose of financing enterprise development projects identified and submitted to the Bank by the UNDP/AGL. 2. The financial resources of the GF will be subsidiary and complementary to collaterals presented by the Clients. 3. The Guarantee coverage shall be determined by Guarantee Management Committee taking into account the sector of economy, the profile of Beneficiaries, and their social vulnerability status, and bearing in mind the level of collateral that the client has provided. 4. In case of default the Bank will apply the regular procedures for the credit recovery based on the Rules and Procedures set by the Central Bank of Lebanon. Type of collateral 5. Third-party guarantor (in the form of personal guarantee of a salary or properties) 6. Properties in the name of the borrower or the guarantor. The value of the properties will be evaluated by an expert. Collateral will be calculated as a percentage of the value as determined by the expert valuation. 7. For fixed asset loans, the Bank will consider pledging a percentage of the value of the machine/equipments/etc. Collateral will be calculated as a percentage of the value as determined by the expert valuation. 8. Strongly viable cash flow plan is required in all cases. 9. Any other forms of security that may be accepted at the Bank and that are available to the end borrowers. C. PROJECTS ELIGIBLE FOR LOANS The beneficiaries of UNDP/AGL are new and existing small farmers, associations and cooperatives, and micro, small and medium entrepreneurs of the area where UNDP/AGL is operative (Northern Lebanon, Bekaa, South Lebanon and Beirut Southern Suburbs). Potential clients of the BANK, in order to be eligible, must fulfil the following conditions: 1. Residency of the loan - applicants in North Lebanon (Akkar, Dinnieh Minieh, and Tripoli), Bekaa (Cazas of Hermel, Baalbeck, West Bekaa and Rachaya) South Lebanon ( Cazas of Sour, Nabatieh, Bint Jbeil, Hasbaya and Marjayoun) and Beirut Southern Suburbs (municipalities of Haret Hreik, Burj Barajneh, Ghobeiry, Chiah, Fourn Chebback, Hadath, and Mereyjeh)/ OR 2. Micro and SMEs in deprived areas and locally registered farm/association- cooperative /business (including "Start-ups ), with legal capacity to contract 3. CRC will take into consideration the typology of the establishing for already existing business AND Submission of an economically and financially sustainable business plan with cash flow approved by UNDP/AGL; 4. Lack of collateral for normal access to formal credit resources; 5. Preference will be given to business proposals in the eligible areas in the following sectors: a. Agriculture and food processing industry; b. Fishing and aquaculture; c. Manufactures and handicrafts; d. Services in tourism. UNDP/AGL will provide technical assistance to interested Beneficiaries: first in reviewing business ideas, second in assisting eligible candidates in the preparation of a business plan and finally in submission of a loan application. D. RESTRICTION ON THE USE OF CREDITS The GF is not oriented to issue guarantees for credit operations that include: 1. Purchase of any type of used machinery or equipment except for the cases of machinery or equipment completely revised or reconstructed by a competent mechanic or mechanical firm, recognized by the BANK, and with a certificate of warranty valid for at least 12 months; 2. Refinancing outstanding debts the client has with third parties or with the BANK; 3. Lease or purchase of land; 4. Payment of dividends or recovery of investments made by members of enterprises or other associations; 17

18 5. Financing and trading of Stocks or commodities. 18