Rural Finance and Enterprise Development Programme

Transcription

1 Supervision report Main report and appendices Mission Dates: 6 17 October 2013 Document Date: 11-Nov 2013 Project No Report No: 3209-SZ East and Southern Africa Division Programme Management Department

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3 Supervision report - Mission dates: 6 17 October 2013 Contents Abbreviations and acronyms iii A. Introduction 1 B. Overall assessment of programme implementation 1 C. Outputs and outcomes 3 D. Programme implementation progress 7 E. Fiduciary aspects 8 F. Sustainability 10 G. Conclusion 11 i

4 Supervision report - Mission dates: 6 17 October 2013 Appendices Appendix 1: Summary of project status and ratings 13 Appendix 2: Updated logical framework: Progress against objectives, outcomes and outputs 15 Appendix 3: Summary of key actions to be taken within agreed timeframes 17 Appendix 4: Physical progress measured against AWP&B, including RMIS indicators 21 Appendix 5: Financial: Actual financial performance by financier; by component and disbursements by category 23 Appendix 6: Compliance with legal covenants: Status of implementation 25 Implementation Support Notes Implementation Support Note 1: Implementation Support Note 2: Implementation Support Note 3: Implementation Support Note 4: Implementation Support Note 5: Implementation Support Note 6: Implementation Support Note 7: Small-scale Loan Guarantee Fund Incentives for Rural Development Financial Institutions Mobile Money Activities Assistance to the Financial Services and Regulatory Authority Knowledge Centres Building Entrepreneurial Capacity ii

5 Supervision report - Mission dates: 6 17 October 2013 Abbreviations and acronyms FSRA GEF GoS IRM JA KC LUSIP MSMEs MFU MoA SACCOs SASCCO SCA SEDCO SSLGF SWEET Financial Services Regulatory Authority Global Environment Facility Government of Swaziland Investor Road Map Junior Achievements Knowledge Centres Lower Usuthu Smallholder Development Project Micro, Small and Medium Enterprises Micro-finance Unit Ministry of Agriculture Savings and Credit Cooperative Society Swaziland Association of Savings and Credit Cooperatives Swazi Commercial Amadoda Small Enterprises Development Company Small Scale Loan Guarantee Fund Swaziland Women Enterprise Empowerment Trust iii

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7 Supervision report - Mission dates: 6 17 October 2013 A. Introduction 1 1. The (RFEDP) is a six year, countrywide initiative, founded on the realization and conviction that development of on-farm and off-farm business opportunities for the rural poor is a key pathway out of poverty. It is a joint initiative financed by the Government of Swaziland (GoS) and the International Fund for Agricultural Development (IFAD). The RFEDP has two mutually reinforcing thrusts; (i) development of technical and business skills and (ii) increasing access to rural financial services. The long term goal of RFEDP is to contribute to poverty reduction and the overall economic development of poor rural households in Swaziland. The purpose of the Programme is to increase incomes, improve business opportunities and augment access to sustainable rural financial services for the rural poor. 2. The Programme objectives are to: i. provide the rural poor with access to efficient and effective financial services on a sustainable basis; ii. develop an enabling and enhanced environment for business development in rural areas; and iii. establish/develop micro- and small-scale enterprises (on and off-farm) as well as business services in rural areas. 3. The Programme objectives are being achieved through implementation organised through three components: (a) building entrepreneurial capacity in the rural economy to support the target group; (b) deepening the financial sector (enhancing the micro-finance sector); and (c) programme management and coordination. 4. RFEDP is an investment of USD 9.21 million of which USD 6 million and USD 0.2 million are supported by an IFAD loan and grant respectively. GoS is expected to fund the equivalent of USD 2.37 million and significant resources both in cash and kind. The loan became effective on 15 March Project Completion and Closing dates are 30 September 2016 and 31 March 2017 respectively. 5. The mission acknowledges the co-operation and courtesy extended to it by the Government of Swaziland, its agencies, the staff of RFEDP, its partners and community members, for their constructive support throughout the Mission. The aide-memoire was jointly reviewed under the chair of the Acting Principal Secretary Finance on 17 October The findings and agreed actions have been reviewed and confirmed in a management letter from IFAD. B. Overall assessment of programme implementation 6. In 2013, the RFEDP has further developed its role as a catalytic institution for the improvement of the financial and micro-finance sectors in Swaziland. It continues to make impressive progress in fostering a constructive operating environment for micro and rural enterprises, improving the quality and range of microfinance products and services enhancing the capability of rural people to access these products and services. The Programme is successfully promoting a financial inclusion agenda through its activities with MTN (mobile money, self-service and manual kiosks) and with non-bank financial institutions (strengthening capacity of MFIs staff, development of products and services more adapted to entrepreneurs needs) while fostering a conducive financial sector environment through its support to FSRA. The Programme is also successfully providing interventions on the policy support for MSME development; institutional development; and capacity building for micro and small entrepreneurs. 1 Mission composition: Louise McDonald (CPM, IFAD, Team Leader); Thierry F. Mahieux (Rural Finance Expert, Consultant); Kathy Zissimopoulos (M&E and RIMS Data Specialist, IFAD); Robert Creswell (Regional Finance Officer, IFAD); Gianluca Capaldo (Financial Management Specialist, Consultant). 1

8 Supervision report - Mission dates: 6 17 October Noticeable interventions and partnerships of the Programme implemented or continued in 2013 include, among others: (i) support to the Swaziland National Honey Council to define its exit strategy, strengthening capacity of beekeepers and support to business entities within the honey value chain; (ii) support to the Swazi Commercial Amadoda Board and training on financial management and business planning to members resulting in 32 loan applications submitted to NedBank for financing; (iii) support to in-school and out-of-school programmes implemented by Junior Achievements through financing participation of 4 rural schools in Shiselweni and Hohhot regions and elaboration of adequate training modules and curricula; (iv) partnerships with SEDCO and the University of Swaziland to provide specific technical and business management training for Programme-supported entrepreneurs, and (v) support to MoA extension officers through the provision of training-of-trainers training on business management, marketing, commercialization and value chain development. 8. The mission found no improvements in M&E since the last visit. This is evident through the large training data backlog and the inability to verify even basic data, such as number of trainings conducted. There is a lack of combined monitoring and evaluation of all partnering agencies in regards to both effectiveness of the training provided, and the partnering agencies capacity to provide the training. An evident gap also exists between completion of training and further evaluation of its effectiveness. There is a need to monitor post-training outcomes such as: number of jobs created, number of micro- and small enterprises created or developed (and still operating after 3 years), and overall impact on household livelihoods. 9. The overall lack of efficient M&E across the financial sector was apparent throughout the mission. The FSRA is well aware of the urgent need to better monitor performance of MFIs in order to offer capacity building in areas of weakness. The MFIs visited were also challenged in areas of portfolio performance tracking and the non-existence of an effective Credit Bureau system for both banks and non-banks increases the vulnerability of credit risk. 10. Noticeable activities related to the deepening of the financial sector include, among others: (i) assistance to Swaziland Women Enterprise Empowerment Trust (SWEET) to formulate its business plan; (ii) continued assistance to MTN for the mobile money concept as well as the implementation of self-service kiosks and manual kiosks; (iii) strengthening the capacity of FSRA staff; (iv) assistance to the Central Bank to draft the terms of reference for the Financial Inclusion Strategy which will link with the Financial Sector Development Strategy, and (v) assistance in the implementation of the outcomes of the diagnostic on SACCOs and SASCCO. 11. The lack of strategic vision on the Swazi non-bank financial sector and its capacity to absorb a wide range of financial institutions proposing different terms and conditions affecting each other s sustainability (commercial banks, non-bank financial institutions and governmental programmes) as well as the absence of any national financial inclusion strategy to date constitute hindering factors for a larger penetration of microfinance in rural areas. Although some initiatives have been developed by commercial banks with regard to financing micro- and small enterprises in rural areas, their commitment remain very modest. In addition, despite substantial efforts from the Programme, financing micro-, small and medium enterprises remains a challenge as both commercial banks and non-bank financial institutions products are in most cases still not adapted to their needs. In that respect, the role of the Small Scale Loan Guarantee Fund implemented by the GoS remains controversial as its operating modalities and eligibility criteria clearly miss its intended target (noninclusion of MFIs that are the main providers of loans to small-scale enterprises, portfolio guarantee to reduce transaction cost for small and micro-loans). The Programme should provide further support to the Fund to align its activity to the needs of programme-supported micro- and small entrepreneurs. 12. The promising non-bank financial institutions sector faces difficulties to expand its outreach as institutions compete for the same target clientele and benefit from each other s weaknesses to scavenge their clientele, instead of going for a new clientele. The current situation of Imbita requires drastic measures: either the immediate cessation of activity or an immediate restructuring inclusive of the redefinition of vision, business plan as well as an assessment of management s capacity to undertake these changes. 2

9 Supervision report - Mission dates: 6 17 October Finally, based on lessons learned from the beekeeping support, the Programme should develop a similar approach and methodology to other agricultural value chains aiming at assisting small entrepreneurs to access financial services. Such an up-scaling requires a prior consultation with financial institutions to fine-tune their products, the organization of which will be vested with the Programme. 14. The Programme has further continued its partnership with other IFAD-funded projects such as: GEF: Beekeeping activity (training on financial and business management to beekeepers), and LUSIP: livestock project (design of specific financial products for beef fattening smallholders and traders). Agreed action Responsibility Agreed date Implement procedures to capture impact and effectiveness of training provided and of all other activities MFU Immediately Assist the SSLGF to align its activity with that of micro and small enterprises MFU 31 Dec Assist Imbita to determine future direction MFU Immediately Assess Imbita s management capacity to implement required changes MFU Immediately Develop an approach similar to the one implemented for the Honey VC to other value chains MFU 31 March 2014 C. Outputs and outcomes Component 1: Building Entrepreneurial Capacity in the Rural Economy 15. Policy support for MSME development. The role of the Programme through the Investor Road Map (IRM) subcommittee called Empowerment of Domestic Investors is essential to enhance the environment of micro-, small and medium sized businesses and facilitate their development and sustainability. 16. The Small Scale Loan Guarantee Fund (SSLGF) requires changes that will improve its impact on the local MSMEs and investors. The major change concerns the accessibility for all financial institutions instead of being limited to commercial banks and money lenders. Under the present mechanism, MSMEs which are in majority financed by non-bank financial institutions can t get access to the guarantee scheme while commercial banks for which MSMEs is not a vital sector for expansion of their business can access the scheme. Currently the operation of the present SSLGF misses its objective and its intended market. The Programme should provide further support to the Fund to align its activity to the needs of micro- and small entrepreneurs. 17. The Programme should, after guidance from the MoF, also focus on identifying tax incentives that could facilitate the creation of businesses in rural areas and/or facilitating access of rural entrepreneurs to resources from financial institutions. Tax exemption for a few years for investors in rural areas; reduced tax rate for businesses in rural areas depending on the number of jobs created; tax exemption or tax reduction for interest income of commercial banks when lending in rural areas or to micro and small enterprises in rural areas are possible incentives that could be proposed to boost investments in rural areas. The Programme could organize a workshop with stakeholders from the private and public sectors and invite international experts to share successful experience in other countries. 18. Business support to entities and rural entrepreneurs. The approach used by the Programme is in line with the needs of businesses and entrepreneurs as well as taking into account the necessary requirements of financial institutions to be met by these entrepreneurs and businesses in order for them to access financing. The focus of the Programme is clearly on the development of entrepreneurs capacity to develop and manage their businesses and to access financial services. 3

10 Supervision report - Mission dates: 6 17 October Based on lessons learned from the support provided to beekeepers, the Programme should also further promote and strengthen value chains. There can be a determining factor for smallholders and small producers inclusiveness enabling them to access market and finance. Selected non-sugar cane value chain could be identified together with other IFAD-funded projects and the Programme could assist all stakeholders in: (i) building up their capacity with the assistance of stakeholders, and (ii) developing attractive financial instruments to finance producers considering contract farming, tripartite agreements between financial institutions, producers and off-takers, and specific repayment mechanisms. 20. The Programme is currently conducting a training-of-trainers need assessment for MoA 103 extension officers that would lead to a Operational Training Plan focusing on areas such as: finance, marketing, commercialization, and improved assistance to farmers. Possible collaboration between the MoA and MFU could, after establishing an appropriate partnership with the MoA, concern the revitalization of agriculture centres into Knowledge Centres (KCs) that would host training sessions conducted by the extension officers, become a meeting point for all value chain stakeholders, become a registered point of operations for MTN and mobile money, become a point of access to e- knowledge, and become a delivery and collection point for inputs and production. These KCs owned by the GoS, managed by the extension officer would be steered by a Board of Directors elected among local farmers. MFU could (i) assist MoA to elaborate a long-term business plan and related procedures; (ii) provide adequate training to farmers and extension officers in the management of the KCs, and (iii) assist Board of Directors to establish the proper financial mechanism to cover operating expenses, as well as operation and maintenance costs. 21. The Programme is currently assisting the Swaziland Honey Council to elaborate an exit strategy for a continuing support to beekeepers after project completion in The exit strategy will aim at strengthening the capacity of the Swaziland Honey Council, adopting a value chain approach, encouraging new entrants, and facilitating access to finance. Field visits and meetings with several beekeepers groups have confirmed their satisfaction as well as the adequacy, pertinence and effectiveness of training provided. Alternative source of funding should be explored by the Swaziland Honey Council and MFU such as Adopt a Beehive initiative. 22. The Programme has provided support to the Swazi Commercial Amadoda (SCA) in the form of the creation of a website and procurement of one computer, capacity building of governing body members, and training to entrepreneurs members. Out of 200 trainees, 55 have drafted their business plan of which 32 have already submitted their loan applications to NedBank. So far, none of them have been financed due to high perceived risk by NedBank and small loan size. These factors were confirmed during a discussion with NedBank. MFU and SCA are currently working on the possibility of forming groups of similar activities to meet the bank s requirements. In that respect, the mission recommends a proper training of entrepreneurs in group management as well as further training of the SCA governing body members to supervise these groups. The mission strongly advises the SCA to implement with the assistance of the MFU a proper monitoring and evaluation system enabling them to assess the impact of businesses on entrepreneurs livelihoods. 23. The Programme is also providing support to rural schools when participating in the Junior Achievements (JA) in-school youth entrepreneurship programme (support to 4 schools, 2 in Shiselweni and 2 in Hohhot selected on the basis of their commitment to the JA initiative), and to 50 students engaged in the JA out-of-school entrepreneurship. Together with the JA, the programme has developed the curricula for out-of-school students. The Programme is also playing an active role in encouraging enterprise development in youth. 4

11 Supervision report - Mission dates: 6 17 October 2013 Agreed action Responsibility Agreed date Further support to Small Scale Loan Guarantee Fund to align its activity with micro- and small enterprises needs MoF / MFU 31 March 2014 Organize a workshop on tax incentives for attracting investments and financing in rural areas MoF / MFU 31 March 2014 Assist MoA to develop a long-term business plan and related procedures to revitalize Agriculture Centres into Knowledge Centres and further train MoA MFU 31 March 2014 extension officers in financial and business management. Explore the Adopt a Beehive initiative MFU / Honey Council 31 March 2014 Further train SCA Board members in group management and supervision MFU 31 Dec Assist SCA to implement a proper M&E system MFU 31 Dec Component 2: Deepening the Rural Financial Sector 24. Financial inclusion. There is no financial inclusion policy or strategy in Swaziland at present. This aspect is mentioned only in the Poverty Reduction Programme. The 2020 Vision developed under the National Development Strategy also lacks a proper financial sector framework. FinMark Trust and MFU are currently engaged in working on a specific strategy for the financial sector. In that respect, the FINSCOPE study 2011 will be updated in 2014 with the supply side of microfinance to be included. MFU and FinMark Trust are also engaged in a long-term relationship aiming at educating consumers. The 1 st step was the elaboration of the Consumer Credit Bill (to be endorsed by the new Cabinet) while the 2 nd step will focus on the following 4 pillars of financial inclusion: access to credit, payment system, savings and risk. In addition, it is noted that UNCDF will undertake a Making Access Possible (MAP) exercise aiming at developing a road map for financial inclusion. 25. E-technology solutions. The implementation of e-technology solutions with MTN continues to progress smoothly. As of today, MTN reports (increase by 36% since last mission) registered e-wallets but only about 15% are active users. A survey undertaken by MTN in 2013 shows that the low rate of usage of e-wallets is mainly due to: (i) lack of knowledge (74%). In that respect, further training has been provided to the field staff on registration process and assistance to users. MTN will offer an extra on number of active users as incentive for the field staff, (ii) people are waiting to receive money, and (iii) distance to a point of services. So far, 364 agents have been registered with the Central Bank of which 70% are active. An average of monthly transactions are reported by MTN for an average amount of E 26.9 million (USD 2.7 million). The mission recommends MTN to further analyze the transactions in order to qualify the flow of funds between rural and urban areas through a sample of transactions during 4 or 5 consecutive months. 26. MTN is currently negotiating with utilities and Insurance companies to enable people to business transactions together with an increase of the maximum amount per transaction to allow payments above the current limit of E In addition, commercial banks (4) and MTN have agreed to enable transactions from bank accounts to e-wallets. 27. Self-service kiosks. Only 5 kiosks are currently operational with an average of 48 transactions per day. Technical and procedural issues are impeding further implementation of kiosks (transaction speed and number of steps in the process). MTN is confident on addressing the technical problems by the end of 2013 and will implement 10 additional kiosks in Manual kiosks. Recalibrated containers located in rural areas will be implemented as manual kiosks by MTN (20 in 2013 and 60 in 2014). TechnoServe will build the capacity of MTN field agents to operate these manual kiosks. The possibility of developing a business-model based on the microfranchising concept has not yet been explored by the Programme, where various services are offered to rural farmers at a small cost such as: (i) mobile money and airtime; (ii) secretary services such as photo copying, printing, and word processing; (iii) internet café; (iv) agricultural extension service; and (v) other profit-generating activities. To further enhance the in-country partnership between IFADfinanced projects, at least ten of these manual kiosks should be implemented in the LUSIP area. 5

12 Supervision report - Mission dates: 6 17 October Microfinance Institutions. The Inhlanyelo Fund Manager benefited from a training course on Micro-finance Management at Boulder University financed by the Programme and has already implemented best practices learnt during the training (mainly related to portfolio management). Loan officers have been trained in debt and risk management by TechnoServe. Senior management is drafting a Code of Conduct to be applied to all staff. Inhlanyelo has an historical repayment rate of 77% while the 2012/13 repayment rate is reportedly much higher. Weak delivery of client screening services by traditional authorities at chiefdom level negatively impacts on the repayment rate. The Fund is currently charging an interest rate (15% flat) which cannot ensure the Fund s financial sustainability while its main financier has to cover its operating losses. The Programme should assist the Fund to develop a strategy to reach sustainability, either by gradually increasing its interest rate or by reducing its operating costs mainly through the adoption of e-technologies to deliver loans. In addition, the Programme should assist Inhlanyelo Fund in strengthening the capacity of local Chiefdom structures to ensure a higher repayment rate. 30. Imbita s situation has stabilized but remains critical. The overall repayment rate is still around 80%. A debt collector has been hired to recover default loans financed through the Youth Fund resources, hence an improvement in the repayment rate from 65% to 74%. Imbita still suffers from a lack of trust from potential members as Imbita s financial resources are insufficient to provide them access to loans. It results in a drastic decline of savings mobilized (from E 6 million in 2012 to E 0.4 million as of October 1 st ) and number of savers (down from to 3 500). In addition to that, the vulnerability of Imbita is exacerbated by a stronger competition aiming at the same target population. Considering the foreseeable withdrawal of the Youth Fund resources when the extended contract expires in Dec. 2013, it is unlikely that Imbita can continue its activity with only its savings and the small capital injection from FNB (E ). Discussions with Imbita s senior management have highlighted the lack of clear vision for the institution and what its core business should be. While FNB s senior management has reaffirmed its commitment to support Imbita, the lack of vision and business plan is a major hurdle for further refinancing. In light of the present situation, MFU should assist Imbita s senior management either to rapidly cease operations or to define a new vision, restructure its activities, and elaborate a new business plan. MFU should also assess the capacity of the current management to implement these required changes. 31. Financial Services Regulatory Authority. Considering the set of requirements that have to be developed in order for MFIs and other non-bank financial institutions to be registered with the FSRA and the set of financial reports to be provided by each registered institutions to the FSRA, a tripartite collaboration has started between MFU; FSRA and the potential registered institutions. This collaboration aims at: (i) the development of a set of financial reports and data to be provided on a periodical basis to the FSRA by each micro-finance institution; (ii) the diagnosis of their MIS and accounting systems to ensure their capacity to generate the necessary data and documents, and (iii) the fine-tuning of these systems to integrate the necessary changes so as to comply with new regulations and requirements. In addition, considering the vast diversity of institutions falling under the umbrella of FSRA, the MFU should provide technical assistance and capacity building to FSRA staff focusing on areas of monitoring and evaluation. 32. FSRA has completed a draft regulation and legal framework for SACCOs to be approved by the new Parliament. In the meantime, an assessment of SACCOs and an action plan for SACCOs and SASCCO is currently being undertaken by the Programme to identify structural problems and capacity gaps. Upon completion of the assessment and elaboration of the Action Plan, an initial meeting with all SACCOs managers will be organized. 33. Considering the number of players in the financial sector, the reported level of indebtedness of households and the lack of monitoring and evaluation system, the upgrading of Credit Bureaus is urgently required in line with the Consumer Credit Bill. The MFU together with FSRA and FinMark Trust are currently addressing this issue. Furthermore, the MoF through FinMark Trust is working towards building an operational relationship between the Central Bank and the FSRA. 6

13 Supervision report - Mission dates: 6 17 October 2013 Agreed action Responsibility Agreed date Further in-depth analysis of mobile money transactions MTN Immediately Explore the possibility of additional services to be attached to manual kiosks and provide adequate MFU Immediately training to MTN field staff Assist Inhlanyelo to elaborate a strategy to reach financial sustainability MFU 31 March 2014 Assist Inhlanyelo to further train Chiefdom structures MFU / Inhlanyelo Fund 31 March 2014 Assist Imbita to either immediately terminate operations or restructure and develop a new strategy, vision and MFU / FNB / Imbita 31 Dec business plan Assess Imbita s management capacity to implement these changes MFU 31 Dec Train FSRA staff on M&E issues MFU Immediately Organize workshop for SACCOs and SASCCO on the outcomes of MFU assessment MFU / SASCCO 31 Dec Further participate in the elaboration of a business plan for the strengthening of Credit Bureaus MFU / FINMARK TRUST 31 Dec D. Programme implementation progress 34. Staff. The mission acknowledges the difficulties faced by the Program Unit to implement activities related to the deepening of the financial sector in the absence of a Program Manager and stresses the urgency for this position to be filled as soon as possible. The new Programme Manager should be experienced in IT and finance (banking). The position of Programme Manager should be filled by Dec at the latest. The mission recommends the MoF Principal Secretary to expedite the approval of the selected candidate. 35. AWP&B. 2013/2014 AWPB was submitted to IFAD on a timely basis and tacitly accepted. The approved AWPB provides the split by component and sub component but does not include the detailed tables showing the budget of all the annual activities. The mission provided the Programme with templates of AWPBs and Procurement Plans and recommended to submit a more detailed 2014/2015 AWPB (including the detailed budget for the annual activities) together with the Procurement Plan. 36. Monitoring and Evaluation. On-going difficulties were apparent with the collection of data from initial registration to training and mentoring data. The current manual hardcopy system makes it difficult to monitor the effectiveness of the training programme. The mission found that since the last visit, little effort towards improvement has been made. This had lead to a large data backlog and the inability to verify even basic data, such as number of trainings conducted. 37. The existing training attendance and registration forms were too complex, including much unnecessary data (training form alone was 56 data columns). The mission provided a revised combined training and registration form (20 data columns), which includes all necessary training data, which is RIMS compliant, and also allows data to be updated at the mentoring phase. This will reduce registration time and add efficiencies to data collection, which is currently very poor. During the mission, three data entry clerks were hired by MFU to input the large backlog of training data. This should be completed within 5 working days. The mission assisted with a short orientation, explaining how the information should be input, where the information can be found on the current forms, and offered some support to the clerks upon commencement of the data entry. Partnering agencies and MFU field officers will be provided with the revised forms and will ensure they are completed at the commencement of all future trainings. 38. The newly designed MIS system will be used upon completion of training and mentoring once the SME or start-up is ready for access to finance. Some technical issues have been faced with the new MIS system, which seems to be clashing with the accounting software. This issue is under current review. 7

14 Supervision report - Mission dates: 6 17 October The mission also recommends that future payments to partnering agencies should not be processed until receipt of the completed attendance/registration sheet in electronic format. 40. There is also a lack of combined monitoring and evaluation of all partnering agencies in regards to the effectiveness of the training provided to date. The mission would suggest an evaluation on all partnering agencies not only on number and types of training provided, but a further analysis on the effectiveness of the training and the partnering agencies capacity to provide the training. 41. An evident gap exists between completion of training and the evaluation on its effectiveness. There is a need to monitor post-training outcomes such as: number of jobs created, number of microenterprises developed, overall impact on household livelihoods, etc. Monitoring of post-training effectiveness should however not be limited to households or businesses that have accessed finance, but should also focus on business - enterprises created or developed without formal financial support, a good example being the beekeepers. 42. The mission recommends that a M&E expert is contracted by the MFU on a short-term basis, in order to create the necessary operational procedures for the collection of post-training evaluations, such as focus group questionnaires. 43. Mid-Term Review. The Mid-Term Review mission is planned for March The mission team should last 3 weeks and include: (i) a rural finance/microfinance/e-technology financial solutions expert; (ii) a business development expert; (iii) an M&E specialist, and (iv) and economist. The MFU should make available at the arrival of the mission the necessary documentation for the assessment of key performance triggers, as well as progress reports. Agreed action Responsibility Agreed date Contracting a M&E expert MFU By 15 Nov Strengthen staff capacity on new operational procedures of the enhanced M&E MFU By 31 Dec Develop and implement procedures for monitoring of Partnering agencies training capacity MFU By 31 Dec Develop and implement procedures for monitoring of post-training evaluations MFU By 31 Dec Ensure training data is updated on revised training attendance template MFU Immediately E. Fiduciary aspects 44. Financial management system and internal controls. The Mission reviewed the fiduciary aspects of the Programme through examination and verification of the financial and procurement files, documents and records at the MFU office in Mbabane. The mission has also conducted interviews with the Programme Financial staff and used information in the Progress Report. 45. The MFU updated the Programme Implementation Manual (PIM) in accordance with the suggestions of the last supervision mission (March 2013). Financial management procedures are kept in a separate document. 46. Organization and staffing. Financial management is performed by a Financial and Administration Manager and a Finance and Administration Officer with the support of an Executive Secretary (who is also in charge of the petty cash) under the supervision of the National Programme Director. This structure and the internal controls therein are considered adequate and have been working effectively and efficiently for the financial management of RFEDP. The overall quality of financial management of the Programme is satisfactory: accounting is updated; Special Account reconciliations; bank reconciliations; treasury management; and financial reporting are carried out periodically and timely. 8

15 Supervision report - Mission dates: 6 17 October Financial reporting and monitoring. Accounting is carried out through Sun-system, a software for the financial data capturing accounting and reporting. The system is operating well and the financial reports produced are accurate and submitted regularly at the end of each month. 48. Review of the Statements of Expenditure (SoEs): The mission reviewed a sample of SOEs relating to the period April 2013 September 2013 (in Withdrawal Application 8) and observed that the documentation was complete, well prepared and in order, with expenditures being properly authorised and approved. The expenditures were included in the available detailed activity budget and were in line with GoS and IFAD procedures. The description of the expenditures in the WAs was not always self-explanatory: the mission agreed with the Programme to try to better specify the expenditures description in the 101 and 102 forms included submitted in the WAs. 49. Disbursement. At 30 September 2013 RFEDP s disbursement rate, excluding the Initial Deposit, was USD 2.3 million (39%); including the initial deposit the rate was about 42% (for details please refer to Appendix 3). All the expenditure categories are within the levels of their respective revised allocations and no re-allocations are foreseen at the time of this mission. 50. As highlighted by the last supervision mission, beneficiaries contributions are not being routinely quantified. The mission agreed with the financial management staff to capture, monitor and then quantify the financial value of the in-kind beneficiaries contribution (such as a standardized cost for transportation when attending training or venues and transportation costs for meetings) through the M&E system which was installed in July 2013 and, at the time of this mission, they were entering all the data. 51. Review of the IFAD Special Account and other Programme Accounts: - The mission carried out, together with RFEDP finance team, the reconciliation of the Account managed by the Programme. The table below shows the reconciliation as at 30 th September 2013 (amounts in USD): Initial deposit (A) 750,000 Special Account bank balance (in USD) 482,832 Programme Account bank balance at (in SZL) 132 sub-programme Account bank balance (in SZL) 516,002 Petty Cash balance 636 Expenditures claimed but not yet credited by IFAD (WA 8) 425,987 Expenditures not yet claimed for reimbursement to IFAD 163,429 Subtotal (B1) 1,589, Interest earned/loss 28, GoS Counterpart Funds on the same Account 807, Beneficiaries contribution Un-presented Cheques 3, subtotal (B2) 839, TOTAL C=(B1-B2) 750, Un-reconciled difference D=(A) - (C) The reconciliation of the Accounts shows that the overall financial management, treasury and liquidity management is satisfactory, however, the mechanism of having a single pooled Programme Account prevents the reconciliation of the different Sources of Funds thereby undermining its usefulness as an internal control. The mission recommends RFEDP to open a dedicated IFAD Programme Account. 53. Counterpart funds. The Financing Agreement requires that the Borrower contributes resources for the financing of the activities of the Programme in the aggregate of USD 2.37 million. As at 30 September 2013, the GoS has contributed about USD 1.2 million equivalent, which is 94% of the cumulative amounts of the AWPBs from the beginning of the Programme and 50% of the whole Programme s contribution. The mission appreciates the strong GoS commitment, its timely provision 9

16 Supervision report - Mission dates: 6 17 October 2013 of counterpart funds to date and encourages GoS to continue to meet its contribution in line with the AWPB provisions. 54. Compliance with loan covenants. The Mission reviewed the loan covenants and confirmed that the only non-compliance is the non-submission of the procurement plan. 55. Procurement. The mission reviewed several procurement processes from March to September 2013 (mainly training and studies) and observed that the procurement documentation was well organised and archived and processes were in line with GoS and IFAD procedures. 56. Two purchases were selected and the procurement was found to have followed the due process of the laid down procedures, nevertheless the mission noticed that for the contract number- 021 the Programme had sent a Request for Non Objection to IFAD but had not received a reply so the costs were charged to Counterpart Funds to avoid delays in the implementation of the activities. The No Objection process will be reviewed to determine where the breakdown in communication occurs, such as it is rectified. It is possible that the request for no-objection are being blocked inadvertently by the IFAD filters. 57. Subsequent to the previous supervision mission s recommendation to reconsider the threshold for the prior review for procurement in view of the good quality of the financial management, considering the provision of the Programme Loan Agreement (Schedule 4 PART. E) it was agreed to leave the thresholds unchanged (USD for goods and USD for Services including Consulting Services). 58. Contract Register: The Programme uses a manual contract register for monitoring the progress of the implementation of the contracts. The mission reviewed the contract register and found it contains all the required details. The finance staff is transferring the contract s register into the accounting software. 59. Asset Register: The mission reviewed the register which was found to contain all the assets procured since Programme inception and noted that it has been improved since the last supervision mission with the required additional details: date entry; supplier; and asset location. 60. Audit. The audited financial statements for the year ending 31 March 2013 were submitted to IFAD within the prescribed deadline (30 September 2013). The auditors awarded unqualified opinions on the financial statements, SOEs and Special Account. The management letter included a follow up of the prior year s recommendations and they did not identify any control issues in the current year. IFAD would like to compliment Management on the significant improvement compared to the previous year and will provide detailed comments to further enhance subsequent years financial reporting. In particular, the Statement of Comprehensive Income only includes transfers from the IFAD Special Account to the Programme Account whereas it should be all inclusive. Agreed action Responsibility Agreed date AWP&B 2014/15 to be submitted with sufficient detail by activity to enable control together with Procurement MFU 31 Jan Plan Open a dedicated IFAD Programme Account MFU Immediately Further implement a mechanism to capture financial contribution of beneficiaries PMU 31 Dec Monitoring all documents sent to IFAD PMU Immediately F. Sustainability 61. The strong focus on capacity building of micro-finance institutions, other non-bank financial institutions and micro, small, and medium entrepreneurs as well as the progress in strengthening the policy and regulatory environment of the financial sector offer strong prospect of sustainability for this catalytic programme. Although a wide range of diverse institutions are partnering with the Programme, 10

17 Supervision report - Mission dates: 6 17 October 2013 the lack of proper monitoring and evaluation mechanism at all level prevents a thorough analysis of the programme s impact and performance as well as an assessment of the effectiveness of its activities. G. Conclusion 62. Based on the mission s findings from field visits and discussions, the following conclusions are made on the Programme: 63. Continued catalytic role of the Programme for the improvement of the financial and microfinance sectors; Continued impressive progress in fostering a constructive operating environment for micro and rural enterprises, improving the quality and range of microfinance products and services enhancing capability of rural people to access these products and services; Technical support by an M&E expert and revised operational M&E procedures to allow proper monitoring and evaluation of the Programme s effectiveness and impact which is currently not possible; Support to Imbita should focus on drastic measures to be taken either to cease the activity or to restructure it with a new vision, mission and business plan. Imbita s management capacity to implement such measures has to be assessed by the programme; Further partnership with other IFAD-funded projects for upscaling the Programme s activities; Further participate in the assessment of the microfinance sector to evaluate its absorption capacity with regards to microfinance institutions, products and services, terms and conditions. IFAD and the Government of Swaziland endorse the findings of the supervision mission. 11

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19 Appendix 1: Summary of project status and ratings Appendix 1: Summary of project status and ratings A. Basic Facts Country Swaziland Project ID 1373 Loan/Grant No. 764 Project Date of Update: Last Supervision Mar-13 Financing terms I Supervising Inst. IFAD No. of Supervisions 6 USD million Disb.rate% Approval 17 Dec 2008 Quality at entry rating Total costs % (41%) Agreement 25 Mar 2010 Effectiveness lag 21.2 IFAD loan % Effectiveness 15 Sept 2010 Problem project no IFAD grant % MTR Domestic Total 3.01 Current completion 30 Sept 2016 Last Amendment Government % (50%) Current closing 31 Mar 2017 Last Audit On time Beneficiaries % No. of extensions 0 Cofinanciers B. Project Performance Ratings B.1 Fiduciary Aspects Last Current 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 Effectiveness of targeting approach Innovation and learning 5 5 B.3 Outputs and outcomes Last Current B.4 Sustainability Last Current 1. Building entrepreneurial capacity Institution building (organizations, etc.) Deepening the RF sector Empowerment Programme Mgt Quality of beneficiary participation Responsiveness of service providers Physical/financial assets Exit strategy (readiness and quality) 6. Food security Potential for scaling up and replication 4 5 C. Overall Assessment and Risk Profile Last Current C 1 Overall implementation progress (Sections B1 and B2) 4 4 C 2 Likelihood of achieving the development objectives (section B 3 and B4) 4 4 C 3 Risks Short description of major risks for each section and their impact on achievement of development objectives and sustainability Fiduciary aspects Project implementation progress Outputs and outcomes Sustainability No particular issues. The current lack of a proper M&E system prevents capturing impact and performance of project s activities, which in return doesn t allow the project management team to clearly identify activities that need further support or that don t provide the expected impact on the population. Need to integrate project s activities within rural finance/microfinance in a broader perspective that requires the analysis of the Swazi financial sector and its capacity to absorb all microfinance/rural finance initiatives and institutions, that are providing services not always compliant with the industry s best practices. Need also to coordinate entrepreneurial capacity building activities with structuring of value chains to ensure a greater impact of project and a wider outreach. No particular issues at present due to demand-driven nature of programme activities. 13

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21 Appendix 2: Updated logical framework: Progress against objectives, outcomes and outputs Appendix 2: Updated logical framework: Progress against objectives, outcomes and outputs Results Hierarchy Goal. To reduce poverty and contribute to the overall economic development of poor rural households in Swaziland Development Objective. Rural poor benefit from increased incomes improved business opportunities and access to sustainable rural financial services Indicators (*) denotes RIMS % increase in asset ownership of households in the project area project completion (*) 2. 20% reduction in the prevalence of child malnutrition, by gender (*) 3. 30% of households reporting increased food security 4. Increase from 5% to 15% in portion of national GDP from the rural sector in the project area 5. 20% decrease in the percentage of households in targeted areas in the poorest wealth group 6. 20% increase in average household income 7. 10% decrease in unemployment rates in project area Component 1. BUILDING ENTREPRENEURIAL CAPACITY IN THE RURAL ECONOMY Outcome 1. Rural poor enabled to enterprises accessing facilitated nonfinancial develop viable and sustainable micro services (*) and small business in a pro-poor and enterprises supported by the project operational after enabling environment for business three years development in rural areas % increase in number of business registrations % increase in rural enterprises graduation (from micro to small, and small to medium enterprises) Output 1.1 Improved policy environment for small micro and medium enterprises in Swaziland Output 1.2 Training needs of business support entities and rural entrepreneurs (farmers organisation, cooperatives, communities and youth groups) addressed Output 1.3 Supported rural micro and small entrepreneurs are linked to the MFIs and the formal banking sector policies and 2 legislations approved people trained in post-production, processing, and marketing (*) people trained in income generating activities (*) people trained in business and entrepreneurship (*) 16. 1,400 enterprises accessing facilitated nonfinancial services (*) SACCOs, multipurpose cooperatives, community groups, and farmer groups trained (minimum 10 per category) Means of Verification RIMS baseline and impact assessment National statistics from MEPD, Bureau of Statistics, other UN agencies PRA (including wealth ranking) RIMS baseline and impact assessment National statistics Project M&E Service provider reports Project M&E Service provider reports Risks (R) & Assumptions (A) Government commitment to poverty reduction and reforms (especially for the finance sector) continues Demand and purchasing capacity of markets can absorb increased offer of agroindustry commodities Continued political commitment to decentralization of the development process and poverty reduction Government commitment to pro-poor business environment continues through policy/legislative reforms 15