Programme for Rural Outreach of Financial Innovations and Technologies (PROFIT) Main report and appendices

Transcription

1 Republic of Kenya Programme for Rural Outreach of Financial Innovations and Technologies (PROFIT) Supervision report Main report and appendices 1 1 1

2 Table of Contents Acronyms and Abbreviations AFD AGRA AWPB BDI BSS CF CGAP DCO DFID DTM EAPP EOI FG FGF GoK IF IFAD KENAO KIRSL KM/L KWFT M&E MFI MFU MIX MoCDM MoF MoU PAC PIM PC PROFIT RSF SACCOs TSP USAID WATS Agence Francaise de Development Alliance for a Green Revolution in Africa Annual Work Plan and Budget BRAC Development Institute Business Support Services Credit Facility Consultative Group to Assist the Poor District Cooperative Officer Department for International Development Deposit taking microfinance institution Enhancing Agriculture Productivity Programme Expression of interest Financial Graduation Financial Graduation Facility Government of Kenya Innovation Facility International Fund for Agricultural Development Kenya National Audit Office Kenya Incentive-based Risk Sharing Facility for Agriculture Lending Knowledge management and learning Kenya Women Finance Trust Monitoring and evaluation Microfinance institution Microfinance Unit Microfinance Information Exchange Ministry of Cooperative Development and Marketing Ministry of Finance Memorandum of understanding Programme Advisory Committee Programme Implementation Manual Programme Coordinator Programme Coordination Unit Programme for Rural Outreach of Financial Innovations and Technologies Risk Sharing Facility Savings and Credit Cooperatives Organizations Technical service provider United States Agency for International Development Withdrawal Application Tracking System 2 2 2

3 REPUBLIC OF KENYA PROGRAMME FOR RURAL OUTREACH OF FINANCIAL INNOVATIONS AND TECHNOLOGIES (PROFIT) IFAD LOAN 814-KE, IFAD GRANT 1218-KE Supervision and Implementation Support Mission (Follow up 1) June 2012 A. Introduction 1 1. IFAD and the Government of Kenya (GoK) conducted a follow-up supervision and implementation support mission of the Programme for Rural Outreach of Financial Innovations and Technologies (PROFIT) during June The objectives of the mission were to: (i) satisfy IFAD s fiduciary responsibilities; (ii) ensure that the programme development objectives are being met, and assess progress of the implementation of the recommendations of the last mission, (iii) identify areas that might require restructuring, or scaling up to enhance the attainment of the target of moving a reasonable proportion of Programme beneficiaries out of poverty by the end of the Programme; and (iv) provide implementation support to the Programme Coordination Unit () and other implementation partners to ensure a smooth implementation of the Programme. 2. Since Programme implementation has not commenced at the field level, the mission was conducted in Nairobi through meetings with the staff of the, senior management staff of the Ministry of Finance (MoF) and various stakeholders, as well as the provision of hands-on support to the management in several technical areas. The mission also visited two out of the four Deposit Taking Microfinance institutions (DTMs) competitively selected to benefit from the first round of the Programme s Credit Facility. The wrap-up meeting of the mission was held in Nairobi on 29 June 2012, under the chairmanship of the Permanent Secretary/Treasury, MoF. A full supervision and implementation support mission is proposed for November 2012 to review progress in the implementation of the Programme. 3. The mission is grateful to the GoK, implementing agency staff, the implementing partners and other stakeholders, for their cooperation and support to the mission. B. Overall Assessment of Programme Implementation Progress 4. The overall performance of the Programme is rated satisfactory 2. Notable achievements recorded include: (i) the signing of the Memorandum of Understanding (MOU) between MoF and the Alliance for a Green Revolution in Africa (AGRA) for the implementation of the Risk Sharing Facility, (ii) the successful selection of four DTMs who will benefit from the Credit Facility, (iii) the provision of office space to the by the GoK, (iv) the deployment of an Accountant to the to assist the Financial Controller, and most importantly, (v) the commitment of the GoK to invest one billion Kenya shillings (equivalent to USD 12 million) every year for a five year period to leverage the Risk Sharing Facility. The mission commends the GoK for demonstrating such strong 1/ Samuel Eremie, IFAD Country Director (Mission leader); Eric Rwabidadi, IFAD Associate CPM; and Joseph Nganga, IFAD Country Programme Officer. The following members of the Programme Advisory Committee participated fully in the mission: Ms. Jane Musundi, IFAD Desk Officer, Ministry of Finance; Joram Mucangi Gicheru, Ministry of Cooperative Development and Marketing; Dr. Huldah Ogoti, Deputy Director, Ministry of State for Development of Northern Kenya and Other Arid Lands; Moses Ochieng, CGAP-DFID; and Nixon Bugo, Innovative Finance Officer, AGRA. Useful insights to policy issues were provided by Mrs. Joy Murithi, Deputy Director, External Resources Department, and Mr. Justus Nyamunga, Director of Economic Affairs, both of the Ministry of Finance during courtesy calls on them. Mr. Rodolfo Lauritto, IFAD Consultant on the Corporate Level Evaluation of IFAD's Supervision Policy joined part of the mission since PROFIT is one of the projects for the Kenya country case study. The mission also received valuable guidance from Mr. Cheikh Sourang of the IFAD Office of Strategy and Knowledge Management, on the cooperate scaling up agenda and its applicability to the context of PROFIT. 2 / The IFAD rating of performance is on a scale of 1 (highly unsatisfactory), 2 (unsatisfactory), 3 (moderately unsatisfactory), 4 (moderately satisfactory), 5 (satisfactory) and 6 (highly satisfactory). 3

4 commitment to the scaling up of PROFIT even at the take-off stage of this programme which has considerable potential for transforming the microfinance sector. 5. The mission recommends that the programme pays more attention to: (i) concluding the agreements with the participating banks in the Risk Sharing Facility subcomponent; (ii) concluding the MOU with the Consultative Group to Assist the Poor (CGAP) for the Financial Graduation subcomponent; and (iii) fast-tracking the design of the monitoring and evaluation, learning and knowledge management framework and the baselines, and agreeing with all the participating partners the key indicators to be reflected in the contractual agreements with the partners. With dedication on the part of the and the supervising ministry, the implementation partners, and other stakeholders there are clear indications that the Programme will catch up on the initial time lag in effective commencement of Programme implementation. C. Outputs and Outcomes, by Component 6. Rural Finance Outreach and Innovation Component. The performance of this component is rated satisfactory. This component comprises three subcomponents: the Risk Sharing Facility, the Credit Facility, and the Innovation Facility. 7. Risk Sharing Facility (RSF). The performance of this subcomponent is rated satisfactory. The notable achievements of this subcomponent are: (a) the signing of the MOU between MoF and AGRA on 30 May 2012 by the Permanent Secretary/Treasury and the President of AGRA. AGRA will bring on board the experience and lessons learned in similar government initiated RSFs such as Kilimo Biashara; and (b) continued awareness creation on the RSF opportunities in the banking sector, by PROFIT and AGRA. It is agreed that the Programme should: (i) finalize the selection of participating banks under the RSF by 31 August 2012, and sign the subsidiary agreements by 30 September 2012; (ii) revise and finalize the risk sharing manual by 31 November 2012; and (iii) continuously explore possibilities of graduating large microfinance institutions (MFIs) into the RSF, to enhance their uptake and outreach capacity. 8. Credit Facility (CF). The performance of this subcomponent is rated satisfactory. The Programme has completed a competitive selection process of four DTMs. The mission visited two DTMs (KWFT and FAULU Kenya) and was satisfied by their level of preparedness, poverty focus, innovativeness, and outreach. The mission provided guidance to the on the provisions of the subsidiary agreements to be considered before their finalization. The mission agreed with PMU that the subsidiary agreements should be negotiated and signed by 31 July 2012 so that the first disbursement is effected by 15 September This subcomponent will also benefit from the M&E framework to be developed by the and AGRA so that the key indicators are incorporated in the agreements to be signed. 9. Innovation Facility (IF). The performance of this subcomponent is rated satisfactory. The Programme has already appointed the technical innovation selection committee of experts in lieu of the Fund Manager (FM) as agreed during the last mission. The committee might be expanded to coopt necessary expertise as need arises. It was agreed that the would: (i) develop terms of reference (TOR) for the committee to be discussed and endorsed by the PAC by 31 July 2012; (ii) seek the approval of the PAC and obtain an IFAD no-objection for the payment of a reasonable honorarium as a sitting allowance to the committee by 15 July 2012; (iii) ensure inclusion in the Programme Implementation Manual (PIM) of the approved TOR of the committee; and (iv) ensure the operationalization of the IF by 15 November Technical Support Services Component. This component comprises two subcomponents: Business Support Services; and Financial Graduation. The performance of this component is rated satisfactory. 4

5 11. Business Support Services (BSS). The performance of this subcomponent is rated satisfactory. Following the previous mission recommendation, AGRA was identified as the Technical Service Provider Manager to work with the and the Ministry of Cooperative Development and Marketing (MOCDM) in the identification of a pool of technical service providers (TSPs). The MOU signed between the GoK and AGRA under the RSF component has specified this additional role for AGRA. To hasten the process of recruiting the TSPs, it is agreed that: (i) AGRA through PROFIT advertises for an expression of interest (EOI) for the TSPs after obtaining an IFAD no-objection by 31 July 2012; (ii) the TSPs are shortlisted and prequalified by 30 September 2012; (iii) that the continued role of TSPs is reviewed at the MTR of PROFIT to assess the need for further capacity building; and (iv) AGRA should explore learning opportunities from similar capacity building initiatives for BSS being supported by other development partners such as Financial Sector Deepening, MasterCard Foundation, etc. 12. With regards to the support to rural savings and credit cooperative organizations (SACCOs), PROFIT in collaboration with the MOCDM was able to identify priority training areas which are in line with the implementation dispensation of the new constitution. A sensitization workshop was conducted for the 47 county directors together with other key departmental personnel in June It was agreed that PROFIT and the MOCDM would aim to accomplish the following critical steps by 31 August 2012: (i) strategically select officers from the district cooperative officer (DCO) cadre and train them as trainers of trainers, in anticipation that they will in turn train other DCOs and the SACCOs; and (ii) fine tune the already developed criteria for the identification of SACCOs to get training. 13. Financial Graduation (FG). The performance of this subcomponent is rated moderately satisfactory. The BRAC Development Institute (BDI) which was identified as a potential technical assistance service provider in the PROFIT design document claimed to be unable to handle foreign funds to be channelled through PROFIT, and the, consequently, had proposed to recruit another service provider TRICKLE-UP. IFAD advised this would appear to be single sourcing of an external service provider. During the mission, however, the informed that BRAC USA has shown interest to provide the services with BDI providing quality control and CGAP the overall oversight. It was agreed that: (i) clear institutional arrangements and division of responsibility between MFU, CGAP and BDI, as well as monitorable deliverables for all activities of the subcomponent would be developed; and (ii) in order to fast track the activities under this subcomponent, the Programme would ensure that: (a) an MOU specifying the new arrangement is signed between the GoK and BDI by 30 September 2012, and (b) BDI completes the scoping study by 31 December D. Programme Implementation Performance 14. Programme management. The performance of programme management is rated satisfactory. The continued to receive commendable support from the Programme Advisory Committee (PAC). The has invested considerably in strengthening partnerships with key technical stakeholders required for effective programme implementation, and formalizing the contracts with the implementation partners, with the notable signing of the RSF agreement with AGRA. The contract of the Programme Coordinator (PC) with the Agence Francaise de Development (AFD) has been extended till June 2014, implying a saving on costs for PROFIT, since he will only receive a top-up allowance from PROFIT. An Accountant II has been assigned to the to assist the Financial Controller and a Procurement Assistant identified in the Supply Chain and Management Services Division of MoF to assist with procurement processing. The draft TOR for the Internal Auditor would be submitted to IFAD by 31 July The Financial Secretary of the MoF has written to the Salaries and Remunerations Commission for a confirmation of the allowances to be paid to staff assigned to the but is yet to receive a reply. Office space for the was made available in May but this has not been 5

6 refurbished. It was agreed that the Ministry of Public Works will be requested to produce a design and specifications for the refurbishment which will be the basis for the invitation of tenders from contractors already pre-qualified by MoF for small works so that the works can be completed by 31 August. 15. Staff Training. The mission noted that the programme adhered to the guidelines for staff training. IFADs no objection was obtained for the training requests and back to office reports were written on return. The strategy being adopted by the programme of having echo trainings on return by every officer is welcome to enable others benefit from the skills learned by the trained officer. The mission is of the view that training reports should also be shared widely especially in the thematic groups across the IFAD portfolio to share in the knowledge, good practice and lessons learned. 16. PIM. The continued with the revision of the draft PIM in collaboration with the other implementing partners, a commendable good practice. The PIM will be finalized in the second half of 2012 after the conclusion of the MOUs with the partners and the finalization of the implementation guidelines. 17. Annual work plan and budget (AWPB). The submitted the AWPB for the year 2012/13 to IFAD based on the provisions of the design report, and received a noobjection for it. However, during the annual work planning exercise, PROFIT has not effectively created a link between a participatory annual planning exercise, the monitoring and evaluation activities and the annual reporting exercise across all MFU activities including MFU. The mission reiterates its previous recommendation to that effect which should be implemented during the AWPB review exercise. It was agreed that in future, the AWPB approved by the PAC would be submitted to IFAD for approval before the production of the printed estimates. 18. Monitoring and evaluation (M&E). The performance is rated moderately satisfactory. The has initiated the recruitment of a consultant for the design of the results-based M&E and Knowledge Management and Learning (KM/L) framework. The mission was informed that only four firms responded to the EOI issued by PROFIT. It was agreed that the exercise will be urgently advertised and the procurement finalised by 31 August 2012 so that the tool can serve the intended purpose for the Programme and its partners. As the M&E and KM/L framework under PROFIT might evolve into a wider rural financial sector M&E framework, it was agreed that the MFU and all partners to be involved in PROFIT implementation be fully involved in the design of the M&E framework. This will ensure a better understanding of their roles and responsibilities and the effective use of the framework when it is in place. As agreed in the last mission, the regional IFAD Knowledge Management and Rural Finance networks have been co-opted into the technical innovation selection committee of experts established by PROFIT and this will enhance experience sharing within the region. 19. PROFIT and its partners will ensure that all the contracts, agreements and MoUs under development incorporate monitoring obligations including reporting on monitoring indicators which are clearly outlined in the draft PIM. PROFIT and its partners will ensure that data collection and reporting responsibilities are clearly outlined in the proposed M&E framework. 20. Logical framework. The PROFIT Logical Framework was developed as part of the Programme design. This logframe needs to be reviewed and incorporated as an integral part of the monitoring framework of PROFIT to be developed. All participating agencies will need to report on the relevant targets and indicators identified in the logframe which will also be negotiated in the contracts and MoUs under PROFIT. As a learning M&E tool, the logical framework will be regularly updated in line with the AWPB priorities. 21. Data collection and reporting. All contracts and MoUs under development between PROFIT and its partners will need to clearly reflect data collection and reporting responsibilities. The development of data collection and reporting formats and tools 6

7 needs to be participatory with the respective institutions. Technical partners with experience on RSF (i.e. in Kilimo Biashara), CF, IF (i.e. the IFAD supported Rural Finance Project in Zambia), FG (i.e. CGAP), will support PROFIT in defining the data collection and reporting format. 22. Microfinance Information Exchange (MIX). MIX has been giving valuable support to IFAD design teams on incorporating into the architecture of rural finance projects key performance indicators. Under the current grant, in an effort to equip IFAD with skills and tools for effective rural finance portfolio monitoring and management, the areas of focus include: (i) MIX Gold, a tailored reporting platform that will allow project implementation partners to monitor their portfolio of retail rural finance providers; and (ii) e-learning, a special online module aimed at IFAD project staff to support capacities in performance monitoring and management of indicators from partner financial institutions. PROFIT has had discussions with the MIX team and identified areas of support. 23. Baseline Studies. PROFIT has not yet conducted a baseline survey for the Programme. It was agreed that PMU should fast track the recruitment process of a consultancy firm to undertake the baseline survey by 31 August Gender and youth focus. The performance of this activity is rated satisfactory. The programme is putting into place preparatory measures that will adequately address the needs of rural poor women and youth. Some of the identified DTMs for example are purely women focused e.g. the KWFT. The loan sizes are also small enough to enable the participation of rural poor women and youth which is also enhanced by the rural focus of PROFIT. In moving forward, the programme is encouraged to: (i) finalise the gender assessment study by 30 November 2012 in order to refine the gender mainstreaming targeting mechanism; and (ii) facilitate the formation of youth related SACCOs that address the social dynamics of this category of the population. 25. Poverty focus. The current preparatory activities of PROFIT all indicate the adoption of strategies that address the rural poor. This is demonstrated by the identification of service providers whose core mandate is dealing with the poor and whose products and approaches are favourable to poverty reduction. The programme should hasten the completion of the baseline survey and the M&E framework to enable appropriate data capture on the basis of which future programme impacts will be assessed. 26. Effectiveness of targeting approach. The performance of this activity is rated satisfactory. The Programme is putting in place measures that will adequately outline how the programme will address the plight of the rural poor while being less appealing to the well to do. This is demonstrated by the wide range of financial services to cater for the needs of women whose preference is savings as opposed to loans. The programme will also use service providers whose savings mobilization approach and loan sizes encourage the participation of the poor. To enrich this strategy, however, the mission reiterates the previous recommendations that: (i) the programme maintains a rural focus; (ii) over time, the service providers should be seen to be deliberately making an attempt to moving more into the ASALs; (iii) a targeting roll out plan is developed which identifies the possible areas of intervention using a phased approach by 30 November 2012; (iv) by 30 November 2012, clear criteria are set for awareness creation to the clients in order to enhance financial utilization without creating the impression of free money or allowing elite capture in the provision of financial services; and (v) financial graduation will clearly target the very poor and vulnerable with the use of poverty index and other participatory methodologies. This pro-poor focus selection should be embedded in the PIM and related MOUs and captured in subsequent annual work plans and budgets (AWPBs). 7

8 27. Innovation and knowledge management. PROFIT is one of the few projects with KM mainstreamed during the design. The has already embarked on KM activities, especially through the engagement of and learning from the many partners working with the project. These partners are a good source of KM products. The mission noted that has developed a broad KM framework detailing some of the KM products, channels of communication, timelines and responsible persons. The mission recommends that the KM framework already developed should be finalized with the participation of stakeholders in a workshop by 30 November Holistic KM products for different players may also require a needs assessment study to be carried out. It is hoped that IFADAfrica will work closely with PROFIT to develop a robust KM strategy and learning oriented M&E. E. Fiduciary Aspects 28. Overall financial management. The mission rates the overall financial management (FM) function of the Programme as satisfactory, subject to a more detailed review during the next supervision mission. 29. Financial systems and internal controls. As recommended by the last mission, an Accountant II has been assigned to support the FC for detailed accounting and information management, preparation of Statements of Expenditure (SOEs), and timely update of books of account, and to maintain adequate internal controls and compliance with good financial management practices in terms of sufficient segregation of duties. The FC undertook a learning mission to two IFAD-assisted projects in Nakuru in January 2012 and considered the exercise helpful towards establishing a sound financial management system for PROFIT. 30. Accounting system and reporting. The has not yet procured the dedicated accounting software recommended by the previous mission. It is agreed that this would be completed by 31 July Disbursement. The disbursement rate of the loan stands at 6.7%, representing the payment of the initial deposit of USD 2 million. Disbursement is expected to pick up as soon as the agreements have been signed with participating banks and the DTMs. The Programme has received access to the IFAD Withdrawal Application Tracking System (WATS) but this has not yet been used since there is no new withdrawal application after the one for the initial deposit. 32. Expenditures. Programme expenditures to date were not analyzed. The mission was informed that GoK would consider its pre-financing of PROFIT as a contribution to counterpart funding rather than seek a reimbursement of the funds. 33. Counterpart funding. As indicated above, the pre-financing and other contributions to the programme will be analyzed and considered part of the GoK counterpart funding. 34. Procurement. The financial management and procurement review mission of the IFAD Kenya portfolio recommended that a Procurement Assistant should be seconded to PROFIT to facilitate the procurement process. The GoK has earmarked a staff of the Supply Chain and Management Services Division of MoF to support procurement activities for PROFIT. The mission agreed with the that the capacity of the staff so assigned should be improved through a procurement training planned for July The mission provided guidance to the on the format of the procurement plan which would allow for the monitoring of procurement progress. It was agreed that the procurement plan for 2012/13 will be revised by the in the proposed format and submitted to IFAD for review by 31 July 2012, along with a completed Contract Register in the prescribed IFAD format. No major procurements have been undertaken yet by the programme. Following the advice given by IFAD on the request for procurement of 8

9 motor vehicles, it is agreed that the advertisement would be made by the end of June, and the vehicles delivered not later than 31 October Statutory audit. The Programme will provide a letter of engagement to the external auditor, Kenya National Audit Office (KENAO) along with the TOR by 31 August The TOR would be as prescribed in the new IFAD Audit Guidelines. The audit for the 2010/11 financial year was not done for PROFIT, as advised by the IFAD Controller of Financial Services, but this will be included in the audit for the 2011/12 financial year. F. Sustainability 36. Institutional sustainability. The performance in this area is rated satisfactory. The programme is already working with formidable partners who have a long history of working with IFAD, e.g. AGRA and KWFT. The establishment of a supplementary fund by GoK (KES 1 Billion per year) to support PROFIT financing is a clear indication of sustainability. The programme is encouraged to continuously engage other partners and co-financiers to boost existing programme resources. 37. Social sustainability (empowerment). This will be assessed in future missions. 38. Economic and financial sustainability. This will be assessed in future missions. 39. Technical sustainability. This will be assessed in future missions. 40. Environmental sustainability. This will be assessed in future missions. 41. Exit strategy. The design of this programme has several aspects that encourage sustainability. These include: (a) using the existing MFU to coordinate its activities; (b) using a programme approach that encourages systemic changes in the commercial banking sector to enhance its appetite for lending to the agricultural sector, systemic changes in DTMs to expand rural outreach, and encouraging private sector uptake of innovations and technologies for wider outreach; (c) the introduction of technologies for cost-effectiveness of service provision by participating institutions; and (d) the insertion of a clause on exit strategy in all its MOUs and agreements with partners. To embed this strategy in the implementation process, the programme should start putting into place a monitorable phasing out and exit strategy that outlines detailed action plans per component showing linkages to other relevant service providers and beneficiaries. G. Scaling Up 42. The GoK has demonstrated a strong commitment to the PROFIT mandate of contributing to the microfinance sector policy and creating a multiplier effect by allocating one billion Kenya shillings (equivalent to USD 12 million) every year for a fiveyear period to leverage the RSF. The initiative, to be managed by AGRA, is called the Kenya Incentive-based Risk Sharing Facility for Agriculture Lending (KIRSL). Other development partners such as the World Bank, the European Union and the United States Agency for International Development (USAID) have shown interest in cofinancing PROFIT as a follow-up to the Enhancing Agriculture Productivity Programme (EAPP) financed by them. The mission commends PROFIT for its pivotal role in scaling up and building strong partnerships at the early stage of implementation. 43. Judging from the programme approach, instruments and progress made so far, PROFIT has a tremendous potential to contribute to the development of rural finance as an engine for growth and poverty reduction in Kenya. It also holds promise as a good practice example in the context of efforts, at global and local levels, to establish a community of practice and learning alliance on scaling up in agriculture and rural development, i.e. replicating, adapting and expanding successful programmes and policies to reach more beneficiaries in a sustainable manner. 44. Consequently, the June 2012 supervision mission provided a good opportunity to start documenting the systematic and proactive approach to scaling up under PROFIT. To 9

10 this effect, the answers to a set of "framing questions on the vision, drivers, spaces and pathways for scaling up" will provide the basis for a draft scaling up framework, to be included as one of the annexes to the full supervision report. A first cut of the scaling up framework is already being drafted, along the lines of the framing questions attached to this aide-memoire. This is intended as a compass for IFAD business model, thus helping to shape the agenda for: project supervision and implementation support; M&E as a tool for management, learning and accountability; evidence-based policy dialogue; and partnership building for scaling up. It is understood that the proposed scaling up framework, as a living document, would also be adjusted in the light of implementation experiences and lessons from IFAD's country engagement. H. Impact 45. Physical and financial assets. This will be assessed in future missions. 46. Food security. This will be assessed in future missions. 47. Increase in incomes. This will be assessed in future missions. I. Conclusion 48. PROFIT has just commenced actual implementation by putting in place the relevant coordination and oversight structures and developing the relevant MOUs and agreements with the implementing partners. The overall performance of the Programme is rated satisfactory and innovations are already being introduced which will be keenly monitored during implementation. 10

11 Appendices and Annexes Appendix 1 Summary of project status and ratings Appendix 2 Summary of key actions to be taken with agreed timeframes Appendix 3 Financial: Actual financial performance by financier; disbursements by category and by component Appendix 4 Compliance with financing agreement covenants: Status of implementation Appendix 5 Physical progress measured against AWP&B and appraisal targets Appendix 6 Knowledge management: Learning and innovation Technical reports Additional annexes determined by the supervision mission 11

12 APPENDICES Appendix 1: Summary of project status and ratings A. Basic Facts Country Kenya Project ID 1378 Loan No. 814-KE Project Programme for Rural Outreach of Financial Innovations and Technologies Grant No. Date of Update 30-Jun-2012 Financing terms HC Supervising Inst. IFAD/IFAD No. of Supervisions Last Supervision 2 15-Dec-11 No. of Implementation Support/Follow-up missions 0 Last Implementation Support/Follow-up mission - USD million Approval 16-Sep-2010 Total costs Agreement 22-Dec-2010 Effectiveness lag 3.0 IFAD Total KE Disb. rate % Effectiveness 22-Dec-2010 PAR value - IFAD loan MTR 31-Dec-2013 IFAD grant Current completion 31-Dec-2016 Last Amendment - Domestic Total Current closing 30-Jun-2017 Last Audit - Government No. of extensions - Private Sector B. Project Performance Ratings B.1 Fiduciary Aspects Last Curren t Co-financing (AGRA) B.2 Project implementation progress Last Current 1. Quality of financial management Quality of project management Acceptable disbursement rate Performance of M&E Counterpart funds Coherence between AWPB & implementation Compliance with loan covenants Gender focus Compliance with procurement Poverty focus Quality and timeliness of audits NR NR 6. Effectiveness of targeting approach 4 5 B.3 Outputs and outcomes Last Curren t 1. Rural Finance Outreach and Innovation 7. Innovation and learning 4 4 B.4 Sustainability Last Current Institution building (organizations, etc.) NR 4 2. Technical Support Services Empowerment NR NR 3. Programme Management Quality of beneficiary participation NR NR 4. Responsiveness of service providers NR NR 5. Exit strategy (readiness and quality) NR NR 6. Potential for scaling up and replication NR 4 Justification: Audit was not rated because no audit was done for 2010/11 since the programme had just taken off. Sustainability was also not rated for the same reason. The 2010/11 audit will be combined with that of 2011/12. The improved rating of disbursement was because of the payment of the authorized allocation of USD 2 million in December The improved rating for project management reflects the progress made by the management in coordinating the key initial take-off activities, including the signing of the MOU with AGRA. The improved ratings for gender and targeting approach reflect the strong arrangements for gender and targeting already in place in the DTMIs visited and which are expected to ensure effective targeting during implementation. C. Overall Assessment and Risk Profile Last Current C.1 Physical/financial assets 4 NR 12

13 C.2 Food security 4 NR C 1 Overall implementation progress (Sections B1 and B2) 4 4 Justification for rating: Although the programme has just taken off, considerable foundation work has been done in establishing the Coordination Unit and the advisory committee, preparing work plans and budgets, sensitizing the various implementation partners, and drafting MOUs which are key to achieving the outcomes in the different components. C 2 Likelihood of achieving the development objectives (section B3 and B4) 4 4 Justification for rating: One of the key MOUs has been signed already. However, unless the take-off of actual implementation by partners is fast-tracked, the programme is not likely to fully meet the objectives at completion. C 3 Fiduciary aspects Project implementation progress Outputs and outcomes Sustainability Risks Short description of major risks for each section and their impact on achievement of development objectives and sustainability The delay in the processing of the initial deposit into the Designated Account affected implementation at the take-off of the programme. Disbursement is still low because only one out of the three key MOUs with the implementation partners has been signed and even for this MOU, the agreements with the financial institutions are not yet signed to trigger disbursements. The slow take-off of the project could affect the full achievement of the project targets unless implementation is fast-tracked. Fortunately the senior management of the Ministry of Finance has shown a strong interest in the effective implementation of the project and is expected to monitor progress closely. Since most of the implementation will be undertaken by project partners, the early finalization of the MOUs with these partners will be critical for the establishment of revised baselines and ultimate achievement of outputs and outcomes. Not assessed yet, but institutional sustainability is likely with the location of the project in the Ministry of Finance. D. Follow-up Action Issue/problem Recommended Action Status/Timing Slow finalization and signing of agreements with financial institutions under the Risk Sharing Facility Delay in signing a framework agreement with CGAP/BDI due to CGAP s nomination of a private firm for implementation of the subcomponent which raise procurement procedure issues Delay in signing subsidiary agreements with the selected DTMIs Signing should be concluded promptly and IFAD notified CGAP to clarify its status in implementation of the subcomponent 30 Sep Signing should be concluded 30 Sep promptly and IFAD notified GoK to sign an agreement with BDI with clear demarcation of responsibility between CGAP, BDI and the private firm by 30 Sep

14 Appendix 2: Summary of key actions to be taken within agreed timeframes Action Area Action Agreed Date Whom Progress Rural Finance Outreach and Innovation Risk Sharing (i) Towards finalization of the MOUs, Facility ensure that all issues relating to roles and responsibilities as well as in-kind or financial contribution of the parties are clarified before the signing (ii) identify and select the banks with the right technical capacity (iii) immediately after signing, embark on preparatory activities with the banks engaging the clients in readiness for disbursements while the and AGRA develop a M&E framework to track the activities of the banks (iv) develop a risk sharing manual that stipulates how AGRA will manage the RSF, and share with stakeholders before signing of the subsidiary agreements (v) have the subsidiary agreements with participating banks ready for signing to enable disbursement of RSF (vi) in future PROFIT to explore possibility of graduating large MFIs into RSF, to enhance their uptake and outreach Credit Facility Innovation Facility 30 Mar 12 / AGRA MOU signed with AGRA in May 12. Other MOUs being finalized 31 May 12 AGRA Delayed. To be finalized 31 Aug 12 From 30 Mar 12 AGRA/ / Banks Delayed. Signing planned for 30 Sep Sep 12 AGRA Draft prepared and shared with stakeholders. To be finalized 30 Nov Sep 12 AGRA Signing planned for 30 Sep 12 / AGRA (ii) seek the approval of the PAC and an IFAD no-objection for the payment of a reasonable honorarium as a sitting allowance to the committee; (iii) include in PIM the TOR of the committee and operationalization of IF Technical Support Services Business (i) include in MOU with AGRA its additional Support support as TSP Manager to prequalify the Services TSPs (ii) test the criteria, already developed by MoCDM, for the selection of the District Cooperative Officers (DCOs) to be trained to ensure that selection of districts/ counties will meet the outreach criteria (iii) establish a core training of trainer (TOT) cadre to train more DCOs to address shortfalls in the event of transfers or natural attrition of staff Financial Graduation (i) finalize the framework agreement between MoF and CGAP and the preparatory activities Still under consideration 4 DTMIs selected. Agreements to be signed 31 Jul 12 and disbursement 15 Sep Feb 12 Committee appointed. to seek the approval of 29 Feb Jun Mar 12 / AGRA capacity (i) send out the expression of interest Immediately (EOI) and analyze the results (ii) complete the request for proposal 15 Apr 12 (iii) roll out disbursements alongside that 15 Sep 12 of the RSF (i) constitute 7-member innovation selection committee with membership by appointment from relevant bodies to enhance consistency and follow up Immediately Immediately MoCDM/ MoCDM/ 30 Apr 12 / CGAP the PAC/IFAD for payment of honorarium by 15 Jul 12. Committee TOR to be included in PIM, IF operationalized by 15 Nov 12. Done and MOU signed Sensitization workshop done for 47 county directors and other departmental staff in Jun 12. Agreed that by 31 Aug, staff are to be selected from DCO cadre and trained as TOT, and the criteria will be fine-tuned for the identification of SACCOs to get training Delayed. Agreement to be signed by 30 Sep 12 14

15 Internal auditor Office space Programme implementat ion manual Annual work plan and budget Monitoring and evaluation Logical framework Data collection and reporting (i) provide clear TOR to the two Economists assigned to PROFIT to support the in specific technical components and M&E (i) retain a firm of auditors to perform the functions assigned to Internal Auditor in design report, to widen the scope for the internal audit function (i) make more office space available to Action Area Action Agreed Date Whom Progress Programme Management Assignment of MFU staff Immediately MFU/ Immediately Done. MoF has written to Salaries and Remunerations Commission for a confirmation of the allowances to be paid to staff assigned to the, no reply yet Delayed. Draft TOR to be submitted to IFAD by 31 Jul Jan 12 MoF Delayed. Office space allocated in May 12 but yet to be refurbished 30 Jun 12 PIM revision done with partners and will be finalized in second half of 2012 after MOUs completed 16 Dec 11 Done 31 Jan Feb 12 PAC/ 30 Apr Mar Jun 12 (i) source for technical assistance to develop the PIM, taking into account the provisions of various MOUs and agreements with the implementation partners, and complete the revised PIM (i) complete the revision of the 2011/12 AWPB to reflect current costs (ii) conduct a stakeholder meeting to develop the 2012/13 AWPB (iii) hold PAC meeting to deliberate and approve the revised 2011/12 AWPB as well as the 2012/13 AWPB (iv) submit approved AWPBs for IFAD noobjection (i) MFU should be closely involved in the design of the M&E framework, in the exercise of its oversight responsibility for PROFIT and other stakeholders interventions in rural finance (ii) ensure that the M&E and KM/L framework is in place (iii) co-opt the regional IFAD Knowledge Management and Rural Finance networks to join the PROFIT established Working Group to enhance experience sharing within the region (iv) detail the M&E obligations in each implementer s TOR, contract or MOU, including the monitoring indicators (v) fully develop the responsibilities for M&E of the parties in the PIM (i) review the logframe and incorporate it into the M&E framework to be developed (ii) all participating agencies to report on the relevant targets and indicators identified in the logframe (iii) regularly update the framework in line with the AWPB priorities, as a learning tool (i) M&E Officer and other relevant officers to undertake an exchange visit to the IFAD supported Rural Finance Project in Zambia to learn from experience gained with the development of management and monitoring tools 30 Apr 12 PAC/ Immediately MFU/ Immediately Immediately From 30 Apr 12 / Partners Delayed. The M&E and KM/L framework is not yet developed because of poor response to EOI and will be re-advertized. Awaiting development of M&E framework 28 Feb annually 30 Apr 12 Delayed. To be done in second half of

16 Action Area Action Agreed Date Whom Progress Baseline and gender studies (i) drawing on extensive work done by various stakeholders in the financial sector, complete the baseline studies 30 Jun 12 Delayed. Plan to recruit consultant for survey in Aug 12 Targeting approach Innovation and knowledge management Financial systems and internal controls Accounting system and reporting External audit (ii) undertake a gender assessment study and use it to refine the gender mainstreaming targeting mechanism (i) identify possible areas of intervention, starting from IFAD project areas, and move to cover the whole country with special emphasis on the unreached and underserved areas, including the ASALs (ii) ensure that MOUs provide for participatory approaches and use of targeting in developing products and services for clients (iii) set clear criteria about awareness creation to the clients in order to enhance financial utilization without creating the impression of free money (iv) under financial graduation, target the very poor and vulnerable with the use of poverty index and other participatory methodologies (v) ensure synergies across subcomponents where possible, embed pro-poor focus selection in the PIM (i) determine the learning agenda for each of the working groups and suggest the learning product outputs (ii) the M&E framework to incorporate both qualitative and quantitative instruments that allow for the learning to be reflected in the reporting formats (iii) conduct critical review and reflections meeting with the partners to ensure learning all the times (iv) ensure that the innovation manual allows for experimentation for innovative financial inclusion and outreach as well as for the knowledge products that should emerge for learning purposes (v) report on the knowledge products developed and an action plan for KM (i) assign an assistant accountant to support the FC for adequate internal controls and segregation of duties (ii) train the staff in selected areas of FM (i) procure a suitable accounting software for financial data capture, preparation of financial statements and SOEs, and to meet the IFAD guidelines (ii) train staff and make the accounting system fully operational (iii) formulate Chart of Accounts using the relevant GoK codes of accounts (iv) undertake learning missions with sister projects which are already operating similar systems (i) formally advise KENAO on IFAD s Audit Guidelines, particularly the requirement for specific audit opinions on: (a) designated account, (b) WA/SOEs, and (c) overall opinion on the accounts; (d) management letter; and (e) submission deadline of 31 December 30 Jun 12 Delayed. Plan to conclude study by 30 Nov Mar 12 Adequate measures in place for targeting and poverty focus, including use appropriate products 30 Mar 12 for the poor by the implementing partners. Awareness creation to be done 30 Mar 12 with the conclusion of the MOUs. 30 Jun Mar Apr 12 Most action here awaits the development of the M&E and KM/L framework. 30 Jun Jun 12 Immediately Semiannually Immediately 30 Jun 12 Assistant Accountant assigned in Jun 12. FC visited 2 IFAD projects in Jan 12 for learning 31 Mar 12 Delayed. Plan to procure by 31 Jul 12 1 Jul 12 Not yet done 31 Mar 12 Not yet done 30 Jun 12 FC visited two IFAD projects in Jan Mar 12 Not yet done. Plan to submit revised IFAD Audit Guidelines to KENAO in Jul 12 for all IFAD projects 16

17 Action Area Action Agreed Date Whom Progress (ii) ensure that first audit covers 2011/12 31 Dec 12 Not due yet since expenditures were made in the year Subagreements (i) ensure that the MOU specifies at least the following: (a) the sums to be 30 Mar 12 Agreements not yet finalized with implementing partners committed by the different parties, (b) the cost categories for eligible expenditures and sums for these categories (e.g. overheads, equipment and material etc.), (c) procedures to apply or selection criteria for awarding/transferring funds to a third party (sub sub-recipient), (d) reporting requirements, and (e) exit strategy. (ii) ensure that the reporting requirements of the sub-recipients take into account the requirements of, including: (a) monthly over all accountability statement disclosing how much has been received, how much was spent and how much was the balance at the beginning of the reporting period, (b) a statement of expenditure as per schedule two of the financing agreement, (c) expenditures by components and subcomponents, and (d) annual audit reports to be submitted on time to 30 Jun 12 Letter to the Borrower (i) effect the following amendments to the LTB for better clarity: (a) the designated account denominated in United States Dollars will be in the Central Bank of Kenya or an account held by the Central Bank of Kenya, and (b) there is no SOE threshold for the cost categories of local training and incremental operating costs, which implies that no supporting documentation has to be submitted to the Fund to justify expenditures incurred in these categories, but relevant documentation will be retained by the Programme for review by supervision missions 29 Feb 12 IFAD Not done yet 17

18 Appendix 3: Actual financial performance by financier, component and disbursement by category Table 3A: Financial performance by financier as at Financier Approval (USD '000) Disbursements (USD '000) Per cent disbursed IFAD Loan 29,305 2,000 7% IFAD Grant 600-0% Government 560-0% AGRA 2,750-0% Private sector 50,000-0% Beneficiaries - - Total 83,215 2,000 2% Table 3B: Financial performance by financier by component (USD 000) as at Table 3C: Programme Expenditures (USD, as at ) Category Budget Expenditure % Expenditure I Vehicles, Equipment and Materials % II Technical Assistance, Training and Studies % III Line of Credit % IV Risk Sharing Facility % V Salaries and Allowances % VI Incremental Operating Costs % % 18

19 Appendix 4: Compliance with General Conditions and Financing Agreement covenants: Status of implementation Section Covenant Target/Action Due Date (a) After the date of entry into force of the Agreement, the Borrower/ Recipient may From 22 Dec 10 request withdrawals from the Loan Account and/or Grant Account for Eligible Expenditures. GC Section Withdrawals from the Loan and Grant Accounts GC Section Transfer by the Fund (b) No withdrawal shall be made from the Loan and/or Grant Accounts until the first AWPB has been approved by the Fund and all other conditions specified in the Financing Agreement precedent to withdrawal fulfilled. Upon receipt of an authenticated and satisfactory application for withdrawal from the Borrower/Recipient, the Fund shall transfer to the account specified by the Borrower/Recipient the amount specified therein. From 22 Dec 10 GC Section Eligible Expenditures GC Section Project Implementation (a) The Financing shall be used exclusively to finance expenditures meeting each of the following eligibility requirements: (i) expenditure for reasonable cost of goods, works and services required for the Project and covered by the relevant AWPB and procured in conformity with the Fund s Procurement Guidelines. (ii) expenditure incurred during the Project Implementation Period, except that expenditures to meet the costs of winding up the Project which may be incurred after the Completion Date but before the Financing Closing Date. (iii) expenditure incurred by a Project Party. (iv) expenditure must relate to a category whose allocation has not been depleted, and shall be eligible only up to the applicable percentage. (v) expenditure shall be otherwise eligible in accordance with the terms of the Financing Agreement as may be amended from time to time. (c) any payment prohibited by a decision of the United Nations Security Council, shall not be eligible for financing. (d) any payments to a person or an entity, or for any goods, works or services, if making or receiving such payment constitutes a coercive, collusive, corrupt or fraudulent practice by any representative of the Borrower/Recipient or any Project Party, shall not be eligible for financing. (a) The Borrower and each of the Project Parties shall carry out the Project: (i) with due diligence and efficiency; (ii) in conformity with appropriate agricultural and rural development practices and good governance; (iii) in accordance with plans, design standards, specifications, procurement and work schedules and construction methods agreed by the Borrower/ Recipient and the Fund; (iv) in accordance with the provisions of the relevant Agreement, the AWPBs, and the Procurement Plan; 19