COUNTRIES: Burundi, Kenya, Rwanda, Tanzania, and Uganda

Transcription

1 AFRICAN DEVELOPMENT FUND MULTINATIONAL - EAST AFRICAN COMMUNITY (EAC) Payment and Settlement Systems Integration Project COUNTRIES: Burundi, Kenya, Rwanda, Tanzania, and Uganda PROJECT APPRAISAL REPORT October 2012 Appraisal Team Sector Director: I. LOBE NDOUMBE, Director, OSGE Regional Director: G. NEGATU, Director, EARC Sector Manager: J. MUKETE Manager, OSGE.2 Team Leader: C. IJEH, Chief Financial Economist OSGE.2 OSGE DEPARTMENT

2 TABLE OF CONTENTS Acronyms and Abbreviations Currency Equivalents Fiscal Year Weights and Measurement Client s Information Project Summary Results-based Logical Framework Project Timeframe I - STRATEGIC THRUST AND RATIONALE 1.1 Project Linkages with Regional Strategy Objectives 1.2 Rationale for Bank s Involvement 1.3 Donor Coordination II PROJECT DESCRIPTION 2.1 Project Components 2.2 Technical Solution Retained and other Alternative Explored 2.3 Project Type 2.4 Project Cost and Financing Arrangements 2.5 Project s Target Area and Beneficiaries 2.6 Participatory Process for Project Identification, Design and Implementation 2.7 Bank Group Experience, and Lessons Reflected in Project Design 2.8 Key Performance Indicators III PROJECT FEASIBILITY 3.1 Economic and Financial Performance 3.2 Environmental, Social and Other Impacts IV - IMPLEMENTATION 4.1 Implementation Arrangements 4.2 Monitoring Arrangements 4.3 Project Governance 4.4 Project Sustainability 4.5 Key Risks and Mitigation Measures 4.6 Knowledge Management V LEGAL INSTRUMENTS AND AUTHORITY 5.1 Legal Instrument 5.2 Conditions Associated with Bank s Intervention 5.3 Compliance with Bank s Policies VI CONCLUSIONS AND RECOMMENDATIONS i iii iii iii iv v vi viii

3 Appendices Appendix 1. EAC: Selected Macroeconomic Indicators Appendix 2. Bank Public Sector Portfolio in EAC Partner States Appendix 3. Map of the East African Community Region

4 ABBREVIATIONS AND ACRONYMS ACH ACP ADB ADF AML ATM BCEAO BIS CBA CFAA CMIPC CPAR CPIA CPPR CPSIPS CPT CSD CSP DFID DNS DPs DS EAC EAC-FSDRP EACJ EALA EAC-PSSIP EAPS EFT EU FDI FPAC FSVC GDP GFS IFAD IFMIS IGOs IMF IOSCO IPSAS JAS KYC LAN MAC MFI Automated Clearing House Automated Check Processing African Development Bank African Development Fund Anti-Money Laundering Automated Teller Machine Central Bank of West African States Bank for International Settlements Core Banking Applications Country Financial Accountability Assessment Capital Markets, Insurance and Pension Committee Country Procurement Assessment Review Country Policy and Institutional Assessment Country Portfolio Performance Review Core Principles for Systemically Important Payment Systems Core Project Team Central Securities Depository Country Strategy Paper Department for International Development Deferred Net Settlement Development Partners Development Strategy East African Community East African Community Financial Sector Development and Regionalization Project East African Court of Justice East African Legislative Assembly EAC Payment and Settlement Systems Integration Project East Africa Payment System Electronic Funds Transfer European Union Foreign Direct Investment Finance and Public Accounts Standing Committee Financial Services Volunteer Corps Gross Domestic Product Government Financial Statistics International Fund for Agricultural Development Integrated Financial Management Information System Inter-Governmental Organizations International Monetary Fund International Organization of Securities Commissions Institute for International Public Sector Accounting Standards Joint Assistance Strategy Know Your Customer Local Area Network Monetary Affairs Committee Microfinance Institution i

5 Mobile Money MOU MTR NBFI NPS OMO PAD PAR PCR PCN PCU PD PIU POS PRSP PSS RECs RISP ROs RPG RTGS SBD SIDA TA UA UEMOA USAID USD SIDA SMEs SWITCH WAEMU WAMZ WB Mobile (cell phone) money transfer system Memorandum of Understanding Mid-Term Review Non-Bank Financial Institution National Payment Systems Open Market Operations Project Appraisal Document Project Appraisal Report Project Completion Report Project Concept Note Project Coordinating Unit Presidential Directive Project Implementation Unit Point Of Sale Poverty Reduction Strategy Paper Payment and Settlement Systems Regional Economic Communities Regional Integration Strategy Paper Regional Operations Regional Public Good Real Time Gross Settlement Standard Bidding Document Swedish International Development Cooperation Agency Technical Assistance Unit of Account Economique et Monétaire Ouest Africaine United States Agency for International Development United States Dollars Swedish International Development Agency Small and Medium Size Enterprises Computer system for the management of cards (ATM / POS) West Africa Economic and Monetary Union West Africa Monetary Zone World Bank ii

6 Currency Equivalents As of October 2012 Currency Unit = Burundi (BIF) Kenya (KES) Rwanda (RWF) Tanzania (TZS) Uganda (UGX) 1 Unit of Account (UA) = BIF 1 Unit of Account (UA) = KES 1 Unit of Account (UA) = RWF 1 Unit of Account (UA) = TZS 1 Unit of Account (UA) = UGX 1 Unit of Account (UA) = USD EAC Fiscal Year 1 July June 30 Weights and Measures 1metric tonne = 2204 pounds (lbs) 1 kilogramme (kg) = lbs 1 meter (m) = 3.28 feet (ft) 1 millimeter (mm) = inch ( ) 1 kilometer (km) = 0.62 mile 1 hectare (ha) = acres iii

7 Client s information BENEFICIARY: EXECUTING AGENCY: EAC - Burundi, Kenya, Rwanda, Tanzania, and Uganda EAC Secretariat (Core Project Team) Financing plan Source Amount (UA) Instrument ADF (Regional Operation) 15.0 million Grant Timeframe - Main Milestones (expected) Preparation May/June 2011 Appraisal May 2012 Negotiation 30 October 2012 Project approval 05 December 2012 Effectiveness December 2012 /January 2013 Mid-term Review November 2014 Project Completion Date December 2016 Last Disbursement June 2017 Project Completion Report December 2017 iv

8 Paragraph Project Overview Needs Assessment Bank s Added Value Knowledge Management PROJECT SUMMARY Topics covered Program Name: EAC Payment and Settlement Systems Integration Project Geographic Scope: The following five East African Countries constituting the East African Community (EAC): Burundi, Kenya, Rwanda, Tanzania and Uganda. Expected Project Outputs: Well-functioning and integrated Real Time Gross Settlement (RTGS) systems and retail payment and settlement systems, Central Securities Depositories and Core Banking Platforms in the region; Supporting infrastructure including business continuity and disaster recovery platforms that function satisfactorily; Harmonized national legislation; regulations and policies that ensure adequate supporting pillars for the payment and settlement systems to be integrated throughout the EAC in order to protect payment flows. Including, but not limited to; adoption of common Failure to Settle arrangements, Oversight Framework and Policy, on site-inspection format in line with BIS CPSIPS, regulatory arrangements for payment instruments and collateral levels; enhance capacity and supporting skill sets for specific areas of payment and settlement systems for the EAC-CPT, the National Central Banks, the Commercial Banks, Judges and other stakeholders and regulators. Expected Project Outcomes: Sound national and Integrated Regional wholesale and retail payment and settlement systems that will strengthen the efficiency of cross-border funds transfers within the five EAC countries; together with strengthening of the financial sector regulatory and legislative capacity in the EAC Partner States. Implementation Timeframe: January 2013 to December 2016 Grant Amount: UA 15 million Project Direct Beneficiaries: The EAC will be the recipient of the grant. The direct beneficiaries of the project will include the National Central Banks of the EAC Partner States, Commercial Banks, other financial institutions, and the judiciary, including the East African Court of Justice (EACJ) and members of the East African Legislative Assembly (EALA). This will also include the Office of the Counsel to the Community. This is the EAC Secretariat Legal Office The EAC Partner States have identified the integration of their payments and settlement systems as a priority in order to create a firm foundation that will ensure that payment obligations, throughout the EAC, are settled effectively and with certainty. The need to mitigate risks associated with payment and settlement systems is a high priority with the mitigation of systemic risk paramount. A technological platform is desired that will not only accommodate existing payment systems streams but also provide a common foundation for the introduction and development of additional financial products and services in the future. This project is an integral element of the overall infrastructure, and technological platform required to support the proposed East African Monetary Union to function effectively and will contribute to managing the convertibility of the EAC Partner States currencies in the region. The Project will also contribute to implementation of the Common Market Protocol, particularly the free movement of capital. The proposed project will provide a sound platform aimed at enhancing payment and settlement systems in the EAC Partner States as a prelude to the successful introduction of the East African Monetary Union. The Bank s intervention will catalyze the process of financial integration in the EAC leading to the effective introduction of the proposed East African Monetary Union by ensuring that there is coordination of the process through the EAC Secretariat. The Bank has comparative experience of a similar regional payment and settlement integration project which contributed to the design of the proposed EAC project. The Bank s cumulative experience in the implementation of other payment and settlement systems projects would therefore, be valuable to the beneficiaries in the establishment and, implementation of the proposed project. The implementation of the PSSIP will result in the development of skills and knowledge in specific areas of payment and settlement systems operations and functions for the EAC Secretariat, National Central Banks, and Commercial Banks. This knowledge will be disseminated through seminars and workshops organized by the National Central Banks and Bankers Associations. Also, the implementation of the capacity building component of the project will result in knowledge building for Judges and judicial officers at the EACJ and national courts, as well as members of the EALA. This knowledge will be disseminated through applications of the knowledge, law of precedence, and seminars and workshops. v

9 RESULTS BASED LOGICAL FRAMEWORK Country and project name: EAC - Payment and Settlement Systems Integration Project Purpose of the project: To contribute to the modernization, harmonization and regional integration of payment and settlement systems; ensure common standards for the instruments together with appropriate regulatory practices. I M P A C T RESULTS CHAIN Impact Financial Inclusion and Improved trade and Deeper financial sector integration in the EAC region. Indicator (including CSI) 1. Financial Depth as measured by broad money supply (M2) as a percentage of GDP 2. The share of intra-regional trade to total trade among EAC Countries. PERFORMANCE INDICATORS Baseline Level of financial depth as measured by broad money supply (M2) as a percentage of GDP was 30% in % in 2010 Target Indicator (including CSI) Level of Level of financial depth as financial depth as measured by measured by broad money broad money supply (M2) as a supply (M2) as a percentage of percentage of GDP increases to GDP increases to 35% in % in % in % in 2016 MEANS OF VERIFICATION 1.EAC Economic Surveillance Reports 2. Reports of National Central Banks and EAC Secretariat RISKS/MITIGATION MEASURES O U T C O M E S Outcome 1 Improved and Integrated Regional payment and settlement systems and Improved efficiency of funds transfer across the five EAC countries Outcome 2 Adequate and harmonized legislation and policy supporting payment and settlement systems. 3. Proportion of regional population s access to formal banking services 1. Growth in interbank fund transfers 2. Longest clearing cycle in number of days of local and upcountry cheques. 1. Adequate legislative support and harmonized rules and regulations for payment and settlement systems 22% in 2010 The volume of high value funds transfers in the five EAC countries in 2010 was US$279 billion T+10 days in Very limited support and no harmonization of payment and settlement systems rules and regulations in % in 2014 The volume of high value funds transfers in the five EAC countries in 2014 should grow to US$340 billion T+5 days in 2014 Promulgated legislative support for National Payment Systems, CSD laws and ACH in Uganda, Burundi and Tanzania, respectively by % in 2016 The volume of high value funds transfers in the five EAC countries in 2016 should grow to US$420 billion T+3 days in 2016 Harmonized rules and regulations for RTGS and National Payment Systems approved by the Monetary Affairs Committee and promulgated by the EAC Assembly by the end of EAC Economic Surveillance Reports 2. Reports of National Central Banks and EAC Secretariat 1. Progress reports from NCBs and EAC. 2. Structured promulgation by EAC Assembly Risk 1: Full functionality of the integrated systems if the new systems are not fully implemented at national levels. Mitigation: This risk is mitigated by continued commitment and ownership of the new systems by the Central Banks. In fact, they have also initiated investments that are complementary to the components being provided by the proposed project. The proposed project is therefore intended to fill the gap. Risk 2: Possible lack of commitment of the Commercial Banks to the new payment systems. Mitigation: This risk is mitigated given the commercial benefits that the new systems would provide to the Commercial Banks. The Commercial Banks have been placing demands on the NCBs regarding the need to modernize and integrate the national payment systems. They have also initiated investments to upgrade their infrastructure in anticipation of new payment systems. The arrangements for project implementation also ensure that the Commercial Banks are fully involved in its implementation as members of the NPSCs. vi

10 RESULTS BASED LOGICAL FRAMEWORK Country and project name: EAC - Payment and Settlement Systems Integration Project Purpose of the project: To contribute to the modernization, harmonization and regional integration of payment and settlement systems; ensure common standards for the instruments together with appropriate regulatory practices. O U T P U T S K E Y A C T I V I T I E S RESULTS CHAIN Component 1 Integration RTGS of Centralized database for capturing payment flows within the region Component 2 Drafting and adoption of regulations of corporate governance for banking institutions Component 3 Capacity Building for Structured implementation and coordination of project activities, and Strengthened Judicial Capacity in PSS. COMPONENTS Indicator (including CSI) 1. Number of EAC Partner States with inter-operable and integrated RTGS 2. Technological platform to deliver full regional integration 1. Casting of overarching legislation. 2. Drafting of Directives and Determinations 1. Number of EAC Secretariat, NCBs and other stakeholders Trained in PSS. 2. Number of Judges and Legal Officers Trained in PSS 3. Progress reports and audits of projects produced in a timely manner PERFORMANCE INDICATORS Baseline Three (3) countries currently implementing the East African Payment System (EAPS) Project Full integration not in place platform not in place No regional legislation in place 2011 Limited national legislation in place Limited expertise in PSS in the EAC region 2011 None in 2011 Core Project Team established in 2011 Component 1: Support for Integration of Financial Market Infrastructure Target Indicator (including CSI) At least, 4 All 5 countries countries having having implemented the implemented the East African East African Payment System Payment System (EAPS) Project (EAPS) Project by 2014 by 2016 Raise levels of expertise by training at least 50, of which at least 15 should be women, by 2014 At least 50, of which at least 15 should be women, by 2014 Progress reports and financial statements submitted to the Bank on a quarterly basis. Component 2 : Support for Harmonization of financial laws and regulations Full integration completed Regional technological platform in place In place by In place 2016 Raise levels of expertise by training at least 120, of which at least 45 should be women, by 2016 At least 100, of which at least 35 should be women, by 2016 Progress reports and financial statements submitted to the Bank on a quarterly basis. Component 3: Support for Capacity Building for member states and EAC in PSS; Support for establishment, support for effective project implementation and management, capacity building for key legal, judicial and financial institutions. MEANS OF VERIFICATION Payment system and settlement systems integration established Submission of Bills to the Assembly or Council Directives. Directives and Determinations adopted Workshops, trainings, and assessment. Workshops, trainings, assessment. and Structured reporting to EAC and the Bank of progress impediments INPUTS and RISKS/MITIGATION MEASURES Risk 3: Systems failure and systemic risk posed by having EAC Partner States with mixed levels of readiness and payment systems automation and standards. Mitigation: Business continuity and disaster recovery plans are in place in all the NCBs. Also, as a further mitigation measure, the business continuity arrangements in Burundi and Kenya and disaster recovery arrangements in Tanzania and Rwanda would be further strengthened. Risk 4: Technical Solutions may not be sustained Mitigation: This risk is mitigated because the technologies to be employed for component 1 of the project are standard industry technologies that have been well tested and deployed worldwide. Moreover, Capacity building is a key component of the project, and will ensure that participant s staff is adequately trained and that they receive regular skills upgrades when necessary. Risk 5: Possible constraints of required project implementation capacity which could delay project implementation. Mitigation: The project has provided for the recruitment of a Payment and Settlement Systems Specialist, a Procurement Expert and an Accountant to strengthen the implementation capacity of the EAC Core Project Team. In addition, the NCBs shall provide the necessary technical expertise throughout the procurement process thereby reducing any residual risk. The project also provides for trainings and workshops. ADF Grant = UA 15 million; Central Banks = UA 3.5 million; Commercial Banks = UA 1.5 million Missions: Appraisal, supervision, MTR and donor coordination apacity building by ADB and other DPs (i.e. World Bank) vii

11 Activities/Years Project Processing and Management Grant approval Signing Protocol of Grant Agreement Project Effectiveness and Launching Procurement of Goods and Services Training Programmes Supervision and Monitoring Submission of Annual Audit Reports Mid-term Review Project Completion Date Last Disbursement Project Completion Report PROJECT TIMEFRAME EAC: PAYMENT AND SETTLEMENT SYSTEMS INTEGRATION PROJECT Action by Q3/4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 AfDB AfDB/EAC AfDB /EAC/NCBs AfDB /EAC/NCBs AfDB /EAC/NCBs AfDB /EAC/NCBs AfDB /EAC/NCBs viii

12 Report And Recommendation Of The Management Of The ADB Group To The Board Of Directors For A Proposed Grant To The EAC - Burundi, Kenya, Rwanda, Tanzania, And Uganda In Support Of The EAC Regional Payment And Settlement Systems Integration Project Management submits the following Report and Recommendation for a proposed Grant of UA 15.0 million to the EAC Burundi, Kenya, Rwanda, Tanzania, and Uganda from the Regional Operations envelop for ADF-12 to finance the EAC Regional Payment and Settlement Systems Integration Project (EAC-PSSIP). I. STRATEGIC THRUST AND RATIONALE 1.1 Project Linkages with Regional Strategy and Objectives This proposed project is closely aligned with Bank s Eastern Africa Regional Integration Strategy Paper (EA-RISP) pillars 1 and 2, on Regional Infrastructure and Capacity Building respectively. The proposed EAC-Payment and Settlement Systems Integration Project (EAC-PSSIP) is also closely aligned with the Fourth EAC Development Strategy, 2011/ /16, and the EAC Common Market Protocol, which emphasizes trade facilitation, establishment of a single market in financial services, establishment of the EAC Monetary Union, and integration of Information and Communication Technology (ICT) into regional development initiatives, amongst others. Table 1.1 illustrates the alignment of the EAC Payment and Settlement Integration Project with both the Fourth EAC Development Strategy and the Bank s EA-RISP, Table 1.1: Linkage of the EAC-PSSIP with the 4 TH EAC DEVELOPMENT STRATEGY and AfDB - EA RISP 4 TH EAC DEVELOPMENT STRATEGY AfDB EA RISP EAC PSSIP Strategic Objective Strategic Objective Program objective The 4 th EAC Development Strategy focuses on To create a well-connected, economically prosperous To contribute to the modernization, harmonization consolidating the benefits of a fully-fledged Customs Union, full implementation of the Common Market and laying the foundation for the Monetary Union and the Political Federation and peaceful region by providing support to: (a) the public sector to implement measures that facilitate the flow of capital, goods, and services across the East African Market; and (b) to the private sector, which invests in and finances economic activities and and regional integration of payment and settlement systems; and ensure common standards for the instruments together with appropriate regulatory practices. Regional Priorities/Pillars i. Consolidation of the benefits of a fully-fledged Customs Union ii. Full Implementation of the Common Market iii. Establishment of the EAC Monetary Union iv. Laying the foundation of a Political Federation v. Development of Regional Infrastructure vi. Development and Strengthening of the Regional Productive Sectors vii. Strengthening of EAC Organs and Institutions viii. Wide stakeholder participation Priority Areas Relevant to the EAC PSSIP i. Trade Facilitation ii. Establishment of a Single Market in Financial Services iii. Establishment of the EAC Monetary Union iv. Support to integration of ICT into regional development initiatives. infrastructure across the region. AfDB EA RISP Strategic Pillars i). Regional Infrastructure: (a) Regional Transport/Trade Facilitation Infrastructure (b) Regional Energy Development (c) Information and Communications Technology Development of Shared Water Resources ii) Capacity Building: (a) Support to the CES Tripartite Arrangement (b) Support to trade facilitation, statistical and regulatory and institutional framework (c) Strengthening institutions (RECs/IGOs, continental organizations, special utilities and national implementation units (d) Enhancing financial and technical capacity of regional multilateral institutions and agencies that invest in infrastructure and private enterprises RPGs/Cross-cutting Issues: (i) Regional Public Goods, Climate Change, Management of Shared Water Resources and Transboundary Animal Diseases Control, political risk mitigation services, (ii) Cross-cutting Issues: Gender and Environment, and (iii) Knowledge Management and Networking Focus Areas Relevant to the EAC PSSIP (i) Trade Facilitation Infrastructure (ii) Information and Communication Technology (iii) Support to trade facilitation, statistical and regulatory and institutional framework (iv) Strengthening Institutions (RECs/IGOs, etc.) 1 1. EAC PSSIP Components: (i). Support for Integration of Financial Market Infrastructure (ii) Support for Harmonization of financial laws and regulations (iii) Support for Capacity Building for member states and EAC in PSS. 2. Linkages with EAC and AfDB Strategies: (i) Financial Inclusion and improved trade facilitation (ii) Deeper financial sector integration in the EAC region. (iii) Integration of RTGS systems, together with retail payment streams, and Centralized database for capturing payment flows which is critical for the effective operation of the proposed East African Monetary Union (iv) Improved and Integrated Regional payment and settlement systems (v) Improved efficiency of funds transfer across the five EAC countries. (vi) Adequate and harmonized legislation and policy supporting payment and settlement systems. (vii) Capacity Building for Structured implementation and coordination of project activities. (viii) Strengthening Institutions (RECs/IGOs, continental organizations, special utilities and national implementation units) through the strengthening of capacity at the EAC Secretariat, strengthening of capacity of oversight institutions, harmonization of financial laws and regulations.

13 1.2 Rationale for Bank s Involvement The EAC region is comprised of five Partner States 1 that currently maintain mixed levels of payment systems automation and standards with implications on the ability to integrate the payment and settlement systems at a regional level. The requirement to maintain a secure and accessible payment and settlement systems infrastructure remains an important element in the overall ability to effectively integrate the payment systems within the EAC. However, the continued expansion of the EAC communications backbone proves a valuable element in the regional payment and settlement systems integration. Those member states having RTGS systems, namely Tanzania, Kenya and Uganda, have started the process of integrating their RTGS systems as the initial project toward a comprehensive EAC regional payments and settlement systems integration. The first phase of this process commenced live operations in May Table D.1 in the Technical Annexes provides a broad overview of the national payments systems (NPS) currently in place in the EAC Partner States. Also, NPS legislation and regulations remain variable and inconsistent with the desire to establish an integrated regional payments system. Examples include, in some cases, no NPS Legislation that acts as a supporting pillar for the NPS; the Law of Evidence is mixed, and does not provide for the submission of electronically stored data to be accepted as Prime Facie evidence in a court of law; and clear Oversight regulatory frameworks are not complete in all member states The EAC Partner States have identified the integration of their payments and settlement systems as a priority in order to create a sound foundation that will ensure that payment obligations throughout the EAC are settled effectively and with certainty. The need to manage risks associated with payment and settlement systems is a high priority with the mitigation of systemic risk paramount. A technological platform is required that will not only accommodate existing payment and settlement systems streams but also provide a common foundation for the introduction and development of additional financial products and services in the future. The overriding objective is to develop a sound payments and settlement mechanism that will facilitate the integration of member states national economies into a single monetary area and efficient means of undertaking payments within the EAC region. Details of the Regional, Sectoral and Institutional Context are presented in the Technical Annexes A, while the identified issues, constraints and challenges of the current payment and settlement systems landscape in the EAC region are presented in the Technical Annexes, D.1 to D This project is considered a Regional Public Good (RPG) as it will yield direct utility by accelerating the convergence and regional integration of payment and settlement systems. The project, which was selected by OpsCom during the July 2011 Selection and Prioritization exercise for ROs, will strengthen commercial activities within the region by contributing to more secure, efficient, safe and timely transfer of funds among the EAC Partner States thereby stimulating trade in goods and services and the free movement of capital within the region. Furthermore, the technological platform which the project will provide will encourage more people within the region to enter the formal banking system to undertake retail funds transfers. It will also provide expanded financial inclusion. In the period leading to the desired state of full financial sector integration and Monetary Union, there is a need to ensure that integrated payment and settlement systems are adequately supported throughout the EAC Partner States with a view to accelerating convergence and regional integration of payments and settlement systems thereby contributing to facilitating the conduct of centralized monetary policy within the Union. The project is also expected to have a positive impact on the private sector, 1 Kenya, Tanzania, Uganda, Rwanda and Burundi. 2 Kenya, Tanzania and Uganda 2

14 especially the SMEs, which would benefit from an integrated and sound regional payment and settlement systems The project is of broad public regional interest and benefit that would promote greater trade facilitation and financial inclusion. It engenders both national and regional benefits. The project components are well distributed over all the EAC Partner States with the implication that all EAC Partner States will share its costs and benefits. The project requires effective crossborder collective and cooperative action. The missing elements identified for Burundi, Uganda and Rwanda under component 1, are critical and indispensable for the successful realization of the project. Without the commitment and participation of all EAC Partner States, the objectives of the project of ensuring regional interoperability of RTGS systems, ACHs, ATM/POS switches at national and regional levels together with the establishment of a sound technological platform to deliver regionally integrated payment and settlement systems cannot be realized. The proposed EAC-PSSIP is a pivotal part of the infrastructure required by the proposed East African Monetary Union to operate effectively and manage the convertibility of the EAC Partner States currencies. Each participating country will contribute, proportionately, to the financing of the project through their respective National Central Banks and Commercial Banks. The commercial banks contribution represents the investments that they have to make to interface with the new payment systems in order for the systems to operate effectively and ensures they do not get a free-ride. The Bank s intervention will therefore, catalyze the process of financial integration and inclusion in the EAC and support the effective operations of the proposed East African Monetary Union by ensuring that there is coordination in the process through the EAC Secretariat. The Bank s intervention will also ensure that the free-rider problem is eliminated. See Technical Annex B for a detailed check-list of criteria for financing Regional Public Goods (RPGs) The Bank has comparative advantage and experience in similar operations which has been useful in the design of the proposed project. The Bank s cumulative experience in the implementation of other payment and settlement systems projects would therefore, be valuable to the beneficiaries in the establishment and implementation of the proposed project. Examples include; a Bank financed project to reform systems and means of payment in WAEMU countries through an ADF loan of UA6.20 million to BCEAO which has been successfully completed. Also, implementation of the WAMZ Payment and Settlement Development System Project 3 financed by the Bank, with an ADF grant of UA 19 million which remains on-going. See Table 2.9, for a summary of lessons learnt from previous regional operations. The Bank s cumulative experience in the implementation of payment and settlement systems projects would therefore, provide significant benefits to the beneficiaries in the implementation of the proposed EAC project. 1.3 Donors Coordination The proposed EAC-PSSIP is an integral part of the objective of the East African Community Financial Sector Development and Regionalization Project (EAC-FSDRP) which is being funded by the World Bank. The overarching objective of the EAC-FSDRP is to establish a single market for financial services among EAC Partner States. The EAC-FSDRP seeks to build the foundation for financial sector integration among EAC Partner States upon the six following pillars: (i) Financial Inclusion and Strengthening of Market Participation; (ii) Harmonization of Financial Laws and Regulations Against Common Standards; (iii) Mutual Recognition of Supervisory Agencies; (iv) Integration of Financial market Infrastructure; (v) Development of the Regional Bond Market; and (vi) Capacity Building 3 The Gambia, Guinea, Liberia and Sierra Leone 3

15 1.3.2 The proposed EAC Payment and Settlement Systems Integration Project (EAC- PSSIP) being an integral part of the objectives of the EAC-FSDRP, is aimed at complementing the integration of the regional Financial Market Infrastructure to facilitate the undertaking of cross border funds transfers in support of the economies of the region as a whole, together with providing outreach to rural areas, to encourage greater participation in the formal financial sector. The Bank s support will focus on the provision of funding in pillars 2, 4, and 6, of the EAC-FSDRP where it is felt, and agreed, that strengthening of these component areas would prove to be the most beneficial in the overall progression of the payment and settlement systems (PSS) in the EAC under Phase I ( ) of the EAC-FSDRP. All the donor activities will be coordinated by the EAC Secretariat. This will strengthen client ownership of the project. In view of the foregoing, the preparation and appraisal of the proposed project was coordinated with the World Bank with a view to ensuring that activities that are currently funded under the EAC - FSDRP are not duplicated in the proposed project. It was also agreed that during implementation, coordination between the two institutions will continue and that the project documents for both the EAC-FSDRP and the proposed EAC-PSSIP should be seen as living documents to accommodate the changing needs of the Partner States and to ensure that activities, especially in the areas of capacity building and harmonization of financial laws and regulations, are not duplicated. II. PROJECT DESCRIPTION 2.1 Project Components Project Objectives: The objective of the proposed project is to develop a robust environment for both, wholesale and retail payment and settlement systems and to facilitate market integration, support effective application of monetary policy and financial markets aimed at enhancing safety and efficiency in the overall payment and settlement systems. This will contribute to the pursuit of sound macroeconomic policies and improved functioning of regional integrated financial markets. The project would support, through integrated Payment and Settlement Systems (PSS), the broadening and deepening of the financial sector by establishing a single market in financial services among EAC Partner States, with a view to providing a wide range of financial products and services to all, at competitive prices. The project aims specifically to: (i) contribute to establishing an infrastructure that is sound, efficient and compatible at the regional level; (ii) assist the EAC to redress weaknesses in the legal and regulatory arrangements in banking and PSS which are critical to achieving the effective functioning of a single common market in financial services; and (iii) provide capacity building in the area of payment and settlement systems at both the national and regional level Project Components: The proposed project includes the following components: (i) integration of financial market infrastructure - to achieve its objective this component is expected to realize the integration of RTGS systems and retail systems across the region; (ii) harmonization of financial laws and regulations; and (iii) capacity building. It is expected that integration of existing systems will be substantially completed by 2014 and that the regional technological platform will be in place by The major activities are summarized in table 2.1 while the detailed description of project components and costs is presented in the Technical Annex C1. 4

16 Components Component 1: Integration of Financial Market Infrastructure Component 2: Harmonization of financial laws and regulations. Component 3: 8 Capacity Building Project Management Table 2.1: EAC Payment and Settlement Systems Integration Project-Project Components Component Description Est. Cost (UA mil) Total Cost (i) Supporting the integration and upgrading of Real Time Gross Settlement (RTGS) systems including: (a) Purchase of a Real Time Gross Settlement System (RTGS) and Central Securities Depository (CSD) for Burundi and Integration of the Burundi RTGS with EAPS; (b) Upgrade of the Uganda RTGS to interface with the accounting system; and (c) Support to Uganda to complete the interface between RTGS and the Core Banking System. (ii) Support to Retail Payment System Automation in Uganda and Rwanda through the upgrade of their clearing systems; (ACHs) to accommodate cheque truncation and ATM/POS reciprocity; (iii) Support for SWIFT Connectivity to integrate to the EAPS for Rwanda; (iv) Support for Business Continuity arrangements for Kenya and Burundi; (v) Support for Systems Upgrade and Disaster Recovery arrangements for Tanzania 5 ; and (vi) Support for Network Upgrade and Disaster Recovery arrangements for Rwanda 6. (i) The proposed project will provide consultancy support to the EAC Secretariat in the drafting of legislation and policy to ensure that the payment and settlement systems are adequately supported and integrated throughout the EAC in order to protect payment flows. More specifically, the project will, amongst others, help to: (a) adopt common Failure to Settle arrangements; (b) agree Oversight Framework and Policy, on site-inspection format in line with BIS CPSIPS; (c) agree regulatory arrangements for payment instruments and collateral levels; (d) drafting of regional payment systems legislation; and (e) Support for the development of an EAC oversight framework. (ii) At the national level, support is required for, but not limited to: (a) Development of rules, regulations and procedures to enable the National Payments Systems (NPS) Act in all EAC Partner States; (b) Drafting of the Central Securities Depository 7 (CSD) law and enabling regulations in Burundi; (c) Support for the development of enabling regulations and the NPS Act in Uganda; and (d) Drafting and implementation of rules and regulations for ACH for Tanzania. (a) Training and skills improvement support to strengthen the capacity of the EAC Core Project Team (CPT), National Central Banks, Commercial Banks and other stakeholders in the area of Payment and Settlement Systems; (b) Training judges and judicial officers at the EACJ and members of the EALA in the legislative support required for payment and settlement systems, commercial law, enforcement of collateral, acceptance of electronic evidence as prima facie evidence, and the resolution of contractual disputes, especially in relation to payment and settlement; (c) Training of legal officers at the National Central Banks and Commercial Banks in the legal aspects of payment and settlement systems; (d) Sensitization of the population on retail payment systems and use of electronic means of payment, by means of seminars and workshops and media to explain the new payment systems to stakeholders; (e) Study tour for Payment Systems Experts in the EAC Secretariat and the region to strengthen their capacity in payments systems oversight, including exchange programs between the NCBs to exchange expertise and experience; and (f) Support to the Regional Association of Bankers. (a) Support to the EAC Core Project Team by providing: (i) Payment Systems Specialist/Project Manager (ii) Procurement Specialist (iii) Accountant (iv) Project Administration Assistant (b)project operational costs for the Core Project Teams in the EAC and the NCBs (c) Logistical support for the National Payment Systems Committees (d) Cost of the annual audits during project implementation 2.2 Technical Solution Retained and other Alternatives Explored Large value/time critical systems are not in place in all EAC Partner States. There is a need to implement and integrate national RTGS systems in Partner States to develop a regional cross-border large value/time critical funds transfer system. Integration to the SWIFT network is a prerequisite for all member states to access the EAPS high value system. While Tanzania, Uganda and Kenya have integrated their RTGS systems to establish the foundation of the East African Payment System (EAPS), Rwanda and Burundi are yet to do so, with Burundi requiring the acquisition and implementation of an RTGS system. The solution retained therefore is a regional RTGS system with interface to SWIFT, using the SWIFT FIN-Y copy 4 All figures include price and physical contingencies. 5 See technical annexes Table C.3.11 (A) for details. 6 See technical annexes Table C.3.11 (B) for details. 7 Securities Act 8 The Commercial Banks will be required to sponsor their staff and cover the full cost of their participation in the training programs to be provided under this component. 5

17 platform which utilizes sound SWIFT Closed User Group (CUG) conventions. This would ensure an efficient and secured funds transfer mechanism within the region. This could be extended, in the future, to accommodate the settlement of cross-border clearing house and ATM/POS Switch operations for retail payments, enhance financial inclusion, and stimulate trade among the EAC Partner States An alternative solution considered during the design of the project and reasons for its rejection is presented in the table below. Table 2.2: Project Alternatives Considered Alternative Brief Description Reasons for Rejection Interface of The establishment of an EAC centric VPN would not be cost effective and efficient. Regional RTGS to Establishment of Global best practice for such systems would be the SWIFT service as the de facto global an Independent an EAC centric standard for such systems. Virtual Private VPN Any other alternative to SWIFT could create further delays in the transfer of funds and Network (VPN) integration of payment and settlement systems among the EAC Partner States. 2.3 Project Type The proposed operation is a technical and institutional support project, financed by a grant under the Regional Operations Envelope of ADF-12. The project involves the improvement and integration of the payment systems in Burundi, Kenya, Rwanda, Tanzania, and Uganda. It focuses on three areas: (a) Integration of Financial Market Infrastructure; (b) Harmonization of financial laws and regulations; and (c) Capacity Building. The project will contribute to the modernization, harmonization and regional integration of payment and settlement systems in the EAC Partner States, and develop common standards for instruments together with appropriate regulatory and legislative practices. 2.4 Project Cost and Financing Arrangements The total cost, net of taxes and duties, of financing the implementation of the Payment and Settlement Systems within National Central Banks, covering regional dimensions for the first four years ( ) is estimated at UA 20 million. Of this amount, UA 15 million, representing 75.0 percent of the cost of the project, is the proposed ADF Grant to the EAC. The countries collectively, will contribute UA3.5 million, representing 17.5 percent of the cost of the project through their respective National Central Banks (NCBs). The contribution of each participating NCB will be proportionate to the financing it is receiving under component 1 of the project. The Commercial Banks will be required to contribute UA1.5 million representing 7.5 percent of the project. The commercial banks contribution represents the investments that they would be required to make in their respective offices in order for the new payment systems to operate effectively. In addition, for the Commercial Banks to benefit from the training programs, which shall be undertaken under component 3 of this project, they will be required to sponsor their staff and cover the full cost of their participation in the programs. Details of the fees for participation of Commercial Banks would be determined by the EAC-CPT in conjunction with the training providers. The contribution of the Commercial Banks ensures their commitment and involvement. Incorporated in the cost estimates is a 4 percent physical contingency factor and 4 percent for price escalation on local and foreign currency. At the end of this investment and the initial operation period, the systems will become fully sustainable Tables 2.3 and 2.4 below present estimated project costs by category of expenditure and component while Tables 2.5 (a and b) and 2.6 show financing by source and schedule of expenditure. Costs have been estimated on the basis of data obtained during the Appraisal Mission. Details of the project cost by component and expenditure category are presented in Technical Annex C1. 6

18 Table 2.3: Project Cost by Category of Expenditure (in million UA) 9 CATEGORIES OF EXPENDITURE (USD$ Million) (UA Million) % Total Cost Local Foreign Total Local Foreign Total A. Goods % B. Services % C. Operating Costs % Total Cost % Table 2.4: Project Cost Estimates by Component (in million UA) 10 (USD$ Million) (UA Million) COMPONENT Local Foreign Total Local Foreign Total Integration of financial market infrastructure Harmonization of financial laws and regulations Capacity building Sub-total Project Management Total Base Cost Physical contingencies Price contingencies Total Project Cost Table 2.5 (a): Sources of Financing (in million UA) Sources of Financing Foreign Currency costs Local Currency cost Total % of total ADF % Central Banks % Commercial Banks % Total Cost % Table 2.6: Expenditure Schedule by Component (in million UA) (ADF financing) COMPONENTS Total Integration of Financial Market Infrastructure Harmonization of Financial Laws and Regulations Capacity Building Sub-total Project Management Total Cost Project s Target Area and Beneficiaries While the EAC will be the recipient of the grant, the project will be implemented in the territories of the five EAC Partner States. The direct beneficiaries of the project will include the NCBs of the five countries, the Commercial Banks, other financial institutions and the judiciary, including the EACJ and members of the EALA. However, given the expected improvements to the efficiency of payments processing and funds transfers in the countries, the ultimate beneficiaries would be businesses (especially SMEs) and all users of banking services (including women which constitute the majority of the population) through increased participation and inclusion in the formal financial sector. The efficiency and reliability to be delivered, and expanded financial intermediation, will result in the strengthening and integration of the national payment systems in the five countries designed to encourage a greater proportion of the population to migrate into the formal financial sector. The project would also create an enabling environment for the private sector. As a Regional Public Good, the strengthening of the payment and settlement systems will enhance regional integration and financial governance. 9 Including contingencies 10 1UA = 155USD as of May 20 th

19 2.6 Participatory Process for Project Identification, Design and Implementation The Bank and the EAC Secretariat, in collaboration with the Central Bank of Rwanda and other development partners, held a workshop on Payments and Settlement Systems Development and Integration in the EAC in Kigali in December The objective of the workshop was to review the requirements to establish regional payment clearing and settlement systems in the EAC. It brought together policy-makers, central bankers, bankers associations, regulators, and private sector mobile network operators, technology companies, and independent service providers and other experts to discuss key payment and settlement systems issues facing the EAC. The Conference developed a draft Road Map that the EAC Governments, NCBs and Regulators will follow to undertake the development and subsequent integration of their respective payment and settlement systems. The Road Map was presented to, and adopted by, the Monetary Affairs Committee (MAC) of the EAC during its 13th Meeting held in Zanzibar on 16th December The Bank undertook a preparation mission jointly with the EAC in May/June 2011, to objectively review the road map and propose areas where the Bank could consider providing support and assistance in the development and integration of payment and settlement systems and a mapping exercise that highlighted the areas that the Bank could offer support was undertaken. In addition, the Appraisal Mission, which took place in May 2012, consulted with all the National Central Banks of the five EAC Partner States, representatives of the Commercial Banks in all EAC Partner States (including Bankers Associations), selected private sector ICT and mobile service providers, as well as the World Bank which is currently implementing the FSDRP in the region. As part of the implementation of the project, sensitization of the population on retail payment systems and use of electronic means of payment would be undertaken by means of seminars and workshops and media to explain the new payment systems to stakeholders. 2.7 Bank Group Experience, and Lessons Reflected in Project Design Table 2.9: Lessons learned from the previous Payment Systems and other Regional Projects Lessons learned Actions taken to integrate lessons into the PAR The appraisal team for the proposed project took all necessary steps to ensure, as much as possible, that prior to the signing of loan agreements, the conditions precedent to first disbursement would be met to ensure that the timeframe agreed with the client for the implementation of the project would be feasible. The EAC Secretariat will also initiate the process of recruiting the Payment and Settlement Systems Specialist and other skills required ahead of project approval. 1. Regional Economic Community Secretariats lack experience as the executing agency for payment and settlement systems projects. Moreover, payment and settlement systems integration projects are complex and multifaceted, due to the number of subcomponents/sub-projects that are commonly implemented concurrently. Given these factors, the timeframe proposed for the implementation of the UEMOA project which addressed the reform of the payment systems turned out not to be feasible. 2. In the case of the Union Economique et Monétaire Ouest Africaine (UEMOA) project, there was weak collaboration between the implementing agency, the project beneficiaries and users. For instance, after the completion of the RTGS component of the project it took a long time before it was launched thereby delaying the use of the systems. 3. In many cases, there is a lack of or insufficient capacity of local contractors and service providers to implement projects of regional dimensions. This has been found to be a limiting factor which has subsequently proved difficult to correct during project implementation. 4. In many instances, regional organizations are not familiar with Bank rules and procedures which caused undue delays to project start-up and implementation. 5. It is important that in the formulation of conditions that the Bank ensures that the conditions are realistic and achievable within a reasonable time. This will help to avoid lengthy delays in fulfilling effectiveness and first disbursement conditions. In the case of the proposed project effort would be made to ensure close collaboration between the implementing agency and the beneficiaries of the project. During the appraisal mission extensive consultations were held with the beneficiaries of the project that include both National Central Banks and Commercial Banks. The role of the NPSCs which would be established as part of the project would also ensure sustained consultations with stakeholders throughout the implementation of the project. Component 3 of the project provides for sensitization of the population on retail payment systems and use of electronic means of payment, by means of seminars, media awareness and workshops to explain the new payment systems to stakeholders. During the appraisal mission consultations were held with local service providers to assess their capacity to provide the requisite goods and services. While in two the capacity was weak, there was adequate capacity in the remaining three countries. The mission therefore concluded that, on a regional basis, there is adequate capacity to provide the required goods and services. The Bank will undertake training on its rules and procedures to build the required capacity at the EAC Secretariat, the EAC-CPT and the CPT at the National Central Banks in the application of the Bank s rules and procedures. The appraisal team has taken all steps to ensure that the conditions precedent to first disbursement specific in this report is achievable within a reasonable timeframe. 8

20 2.8 Key Performance Indicators The key performance indicators identified and the expected outcomes, at project completion, are presented in the results-based logical framework (page vi). The first expected outcome is an improved and integrated regional payment and settlement system and improved efficiency of funds transfer across the five EAC countries. The performance indicators under this outcome are: (i) (ii) Growth in inter-bank high-value funds transfers growing from US$279 billion in 2010 to US$ 340 billion in 2014 and US$420 billion in 2016; and Improvement in the longest clearing and settlement cycle for local and upcountry cheques within the region from T+10 days in 2011 to T+5 days in 2014 and T+3 days in The second expected outcome is; Adequate and harmonized legislation and policy supporting payment and settlement systems. The main performance indicator under this outcome is: (i) Improvement from the current state of, very limited regional legislative support for payment and settlement systems to the promulgated legislative support for National Payment Systems, CSD laws and ACH in Uganda, Burundi and Tanzania, respectively by 2014 and the approval of harmonized rules and regulations for RTGS and National Payment Systems by the Monetary Affairs Committee and promulgation of the laws by the National Assembly by the end of III. PROJECT FEASIBILITY 3.1 Economic and Financial Performance The proposed project is an Institutional Support Operation and, as such, is not amenable to credible and rigorous cost-benefit and financial analyses. While the costs of the proposed project are quantifiable (section 2.4), the benefits are indirect and realizable through the integration of the region s wholesale and retail payment and settlement systems which will provide seamless transmission of funds at both the commercial and individual level throughout the EAC Partner States thereby providing an enhanced platform to facilitate expansion of intraregional trade and attract greater local and foreign direct investments. The economic justification of the proposed project includes its contribution to the facilitation of the migration to a common currency and the facilitation of the progress to EAC monetary union resulting in an expanded regional market. In addition, the project is expected to improve financial security of inter-bank flows, within the region, by reducing the use of cash. It will also contribute to increasing financial system stability as float at all levels can be reduced, together with the mitigation of systemic risk. Furthermore, fraud associated with high value sums paid through cheques is mitigated by encouraging the use of RTGS systems. It will also contribute to the reduction of clearing and settlement delays by banks to their customers thus making funds transfer more efficient. The consequent efficiency gains that would result from the above benefits and the accelerated means of undertaking payment for goods and services would contribute to an expansion of the regional economy and GDP growth within the region. In general, it is expected that the economic and financial benefits from the proposed project will be much higher than UA 15.0 million. Other economic and social benefits of the project are discussed in section 3.2 below. 9

21 3.2 Environmental, Social and Other Impacts Environment: The project has been classified as Category 3 by ORQR and will therefore have no adverse effect on the environment Gender: As indicated above, the proposed project would promote cross-border trade; and since women are the most active participants in cross-border trade, particularly at the retail level, the project will have positive social impact on women in the EAC. The project will promote gender inclusiveness through other benefits that it will confer on the population of the region, the majority of which are women. Some of these benefits include, the potential for the project to play a key role in facilitating greater access to finance to the population, contribute significantly in facilitating financial inclusion and expansion of financial services access points to the citizens of the EAC region, within a well regulated and legislative framework. The provision of extended access points coupled with agency banking arrangements that are bank-driven which will result from the project is also expected to provide outreach to the unbanked, and improve financial deepening as more people are encouraged to move from the informal economy to the formal sector as financial services become less complex, more accessible and more reliable specifically reaching the female population Social: The availability of modern and harmonized payment systems among the countries of EAC would ease interbank fund transfers within the region, thereby reducing the necessity for carrying large amounts of physical cash by traders, which exposes them to risks of theft and harm. The expected increase in regional trade that would be facilitated by the project together with the consequent expansion of the regional economy and GDP growth is also expected to lead to increased income for the poor, especially women active in cross-border trade, thereby improving their economic and social well-being Regional Integration: Through its impact on the acceleration of convergence of payments and settlement systems, and the strengthening of regional Common Market commercial activities, the project will contribute to the attainment of EAC s regional integration objectives. Moreover, the negotiations of all the provisions of the EAC Monetary Union Protocol have been completed and awaiting signature by the Summit. The project is a critical element that would contribute to its effective operation Private Sector Development: The project is expected to lead to a reduction in funds transfer costs for SMEs, the economy and the public in general. The integration and management of sound payment and settlement systems would contribute to the overall landscape of the EAC while also encouraging FDI and the presence of multinational enterprises that are evaluating investment in the region which would benefit from an integrated and sound regional payment and settlement systems. IV. IMPLEMENTATION 4.1 Implementation Arrangements Executing Agency: The main organs of the EAC are (i) the Summit of the Heads of States and Governments of Partner States which gives broad direction towards the realization of the goals and objectives of the community; (ii) the Council of Ministers ; (iii) the Coordination Committee which is made up of Permanent Secretaries and reports to the Council of Ministers and co-ordinates the activities of the sectoral committees; (iv) the East African Legislative Assembly (EALA); (v) the East African Court of Justice (EACJ); and (vi) the EAC Secretariat which is the executive organ of the Community. The EAC would be the recipient of the grant. The EAC Secretariat will be the Executing Agency of the EAC-PSSIP and will be responsible for the overall implementation of the project. The EAC Secretariat will 10

22 be the operational link between the Bank and the five EAC Partner States. In this regard, the project will be implemented by an EAC Core Project Team (EAC-CPT) to be established at the EAC Secretariat. The EAC-CPT would be assisted in this assignment by a Payment System Specialist who would serve as the Project Manager, a Procurement Specialist and an Accountant. The Payment Systems Specialist, Procurement Specialist and Accountant would be recruited by the EAC using resources provided by the Grant. The project will also require a Project Administrative Assistance. In addition the EAC would be required to assign an M&E Specialist and an Information and Technology Expert to the project as part of the EAC-CPT As agreed with the EAC and NCBs, the project implementation will be delivered at two levels: the regional level and country level. At the regional level, a Regional Core Project Team (CPT) would be constituted at the EAC Secretariat. The EAC-CPT would maintain responsibility for the overall coordination of project implementation. The EAC-CPT will consist of, at least, three (3) EAC staff from relevant departments/units (including technical staff from the ICT department and an M&E Specialist) and would be headed by the EAC Director of Planning. He or She would be the Project Director and would be responsible for providing general oversight of project implementation activities, and effective interface with the senior management of EAC and the NCBs. The Payment Systems Specialist would serve as the Project Manager with responsibilities for managing day-to-day project activities Actual implementation shall be done at the country level by the National Central Banks, which shall be designated as the Implementing Agencies. The NCBs would be required to establish National Core Project Teams (NCB-CPT) with the head of the department responsible for payment systems at the National Central Bank as the National Project Coordinator, and including experts for each of the project components, including an M&E Specialist. The NCBs project teams would be responsible for all project implementations at the national level. Furthermore, if not already in place, the NCBs will be required to facilitate the establishment of National Payment Systems Committees (NPSC), comprised of representatives of the NCBs, Commercial Banks, and other relevant stakeholders. The NPSC would be regularly consulted during the course of project implementation, and would provide inputs from the users perspective. The establishment of the EAC-CPT and NCB-CPT by EAC and the NCBs respectively, is a condition of first disbursement of the grant resources, while the establishment of the NPSC is also a condition of the grant The NCBs will be required to establish a Steering Committee at the country level that would be chaired by the Deputy Governor, who will also serve as the Project Sponsor. The Steering Committee, which will have oversight over the NCB-CPT, would include management level stakeholders that will be directly impacted by the outcome of the project, including heads of payment and settlement systems, information management systems, financial markets, banking operations, banking supervision, research, finance, and legal. During the implementation, the Steering Committee will provide policy direction, and resolve crossfunctional and other matters pertaining to the project. The Project Coordinator, as a member of the Steering Committee, would provide the required interface between the project and the committee. Representatives of the EAC and solution providers may be invited to participate in the Steering Committee meetings as need arise. In addition, there shall be an Executive Committee, chaired by the Deputy Secretary General Planning and Infrastructure (EAC Secretariat), and composed of representatives of the EAC Secretariat and the NCBs at Deputy Director or Director level which will be responsible for supervising Project operations, in particular overseeing the execution of financial management, procurement, accounting, and monitoring and evaluation (M&E) functions of the EAC-CPT and NCB-CPT. The Executive Committee will be required to meet, at least once in each quarter, to deliberate on the direction of implementation of the project and to take remedial measures where necessary. Members of 11

23 the EAC-CPT and NCB-CPT may be invited to participate in the Executive Committee meetings as need arise Financial Management, Reporting and Audit: The EAC-CPT will be responsible for the financial management of the project. Under the guidance of the Director of Planning, the EAC-CPT, will manage; the budgeting, financial accounting and financial reporting aspects of the project. The accounting will utilize the EAC Computerized Accounting system. All projects in EAC use the same Chart of Accounts which are GFS based and they will not therefore, be required to revise their Chart of Accounts. The EAC s financial systems comply with IPSAS Accrual basis of Accounting and operate under the Sun system The project will follow the financial year of the EAC which runs from 1st July to 30th June. The EAC-CPT would be required to produce quarterly interim financial reports for the project which will be submitted to the Bank no later than 45 days after the end of each quarter. The EAC Internal Audit Department will audit the project at least once annually. The internal audit reports will be shared with the Bank. Annually, the EAC will produce project specific annual financial statements. An annual external audit will be carried out by a competent auditor acceptable to the Bank, selected by the EAC, using the EAC systems. The EAC is currently being audited by an Audit Commission made up of the Auditor Generals of the member states. The Bank recognizes The Audit Commission as an acceptable auditor. However, the EAC Secretariat has the option to recruit an international private audit firm for the purpose of expediting the audit process. To that end, the funds have been appropriately allocated to the cost of the audit in the project budget. The last three entity audit reports of EAC had unqualified audit opinions. The audit report, complete with a Management Letter will be submitted to the Bank not later than six months after the end of the financial year. A detailed audit arrangement is set out in Technical Annex C Procurement: All procurement of goods and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules and Procedures for Procurement of Goods and Works or, as appropriate, Rules and Procedures for the Use of Consultants, May 2008 edition and as amended from time to time, using the relevant Bank Standard Bidding Documents. The East Africa Community (EAC) Secretariat will be the Executing Agency responsible for coordinating the procurement of goods, services and miscellaneous items while the National Central Banks will be the Implementing Agencies responsible for providing the technical inputs and implementation of the activities at national level. An assessment of the EAC Secretariat, Procurement Unit to undertake procurement under ADF financing was undertaken and it was concluded that the unit will need further strengthening in order to effectively support the project. In this regard, a Senior Procurement Specialist will be recruited as part of the Regional Core Project Team to be responsible for procurement under the project, support the Procurement Unit in its regular activities and mentor staff. Detailed procurement arrangements are presented in Technical Annex C Disbursement: Disbursement to the project will be undertaken in line with the Bank s procedure. The Bank s four disbursement methods will be available to be used during project implementation. Disbursement of funds for consulting and non-consulting services and the payment of goods and equipment will be by direct payment in accordance with the Bank s Handbook on Disbursement. For purposes of the project, the EAC will open a Special Account (in US Dollars) at a Bank acceptable to the African Development Bank to receive funds designated for financing project implementation activities such as capacity building and training activities as well as smaller payments. The size of the initial advance into the Special Account shall be as per the Bank s disbursement rules. The opening of the Special Account will be a condition precedent of first disbursement of the grant. The Bank s Disbursement Letter will be issued stipulating key disbursement procedures and practices. The Bank will have the right, 12

24 as reflected in the General Conditions to suspend disbursement of the Funds if reporting requirements are not complied with While the Special Account would be opened and managed by the EAC, it might be necessary, for ease of project implementation, for sub-accounts to be opened in the recipient countries by each of the NCBs. The EAC would be authorized to transfer reasonable amounts of money, based on estimated project requirements, to the sub-accounts opened in the countries. All payments into the special account together with any transfers to the sub-accounts must be fully justified before the replenishment of the Special Account. The Special Account, opened by the EAC will be replenished on condition that at least 50 percent of the most recent advance and 100 percent of all older advances have been justified. Transfers to the sub-accounts, opened in the countries, will not be considered as justifications and the EAC will be responsible for ensuring that the sub-account holders submit to the EAC the relevant documentation to account for the transfers received from EAC. 4.2 Monitoring Arrangements Monitoring and evaluation (M&E) activities remain crucial for the successful implementation of the project. In addition to the regular dialogue between the Governance Expert based in EARC and the EAC-CPT, the Bank will undertake supervision missions, at least, twice annually. The EARC and Field Offices in Bujumbura, Kampala, Kigali and Dar es Salaam will also assist in on-going monitoring of project implementation. The EAC will maintain constant communication with the Bank on the progress of implementation. A mid-term progress review to assess achievements, discuss constraints and make necessary adjustments, where needed, would be undertaken after two years of implementation. At the end of project implementation, the Bank would prepare a Project Completion Report (PCR) to evaluate the achievements of the project and the lessons learned from its implementation The EAC will submit quarterly progress reports in a form and substance satisfactory to the Bank, on the implementation of the respective components. The reports will review progress made in light of the project s Results-Based Logical Framework and include a clear presentation description of activities undertaken during the period under review. The reports will also analyze; to what extent the activities undertaken have contributed to the realization of the anticipated results/outputs and project objectives, make recommendations to address any issues encountered, and present time-bound actions/work plans for the following quarter. The EAC will also be required to prepare and submit, to the Bank, a Project Completion Report (PCR) within three months of the final disbursement that will provide an overview of the project s implementation, the project outputs achieved vis-à-vis the estimates and the lessons learned from the implementation in accordance with the Bank s General Rules and Procedures. The indicative implementation schedule is summarized as follows: Table 4.1: Project Implementation Schedule Task Responsible Party Dates/Period Preparation Bank May/June 2011 Appraisal Bank May 2012 Grant Approval Bank December 2012 Grant Effectiveness Bank and EAC/NCBs December 2012/January 2013 Procurement of goods and services EAC/NCBs March 2013 June 2015 Training programmes EAC/NCBs June 2013 June 2016 Submission of Annual Audit Report EAC Annually from 2014 to 2017 Supervision Mission Bank June, and December 2013, 2014, 2015, and 2016 Mid-term Progress Review Bank November 2014 Project Completion Bank and EAC/NCBs December 2016 Last Disbursement Bank June 2017 Project Completion Report Bank and EAC December

25 4.3 Project Governance Article 4 of the EAC Treaty which provides for legal capacity of the Community, states that the Community, as a corporate body shall be represented by the Secretary General. Consequently, funding for all projects and programmes of the EAC is negotiated, agreement signed and managed by the EAC Secretariat. This is founded on the provisions of Article 4 read together with Article 71 of the EAC Treaty which provides for, inter-alia, the Secretariat s function envisaging: 71 (1) (b) the initiation of studies and research related to the implementation of programmes for the most appropriate, expeditious and effective ways of achieving the objectives of the community; (c) the strategic planning, management and monitoring of programmes for the development of the Community; (h) the general administration and financial management of the Community; (i) the mobilization of funds from the development partners and other sources for the implementation of projects for the Community. It is clear from these provisions that the EAC Secretariat has the mandate to deal with the Bank on EAC related projects/programmes requiring funding. The implementation of this project shall therefore, be similar to the implementation of any other EAC project or programme. 4.4 Project Sustainability The key stakeholders to the project, including the EAC, NCBs and Commercial Banks have indicated strong commitment to the overall sustainability of the project. In particular, the NCBs and Commercial Banks have been in the forefront of the efforts to improve the payment systems in the EAC Partner States. The National Payment Systems Committees, proposed in this report, would be charged with the responsibility of monitoring and supporting the investments made under the project. Also, the EAC has committed to mainstreaming the Payment System Specialist, Procurement Specialist, Accountant, and Project Administrative Assistant to be recruited for the project after the implementation of the project. This will ensure that core capacity for payment and settlement systems is established at the EAC. In addition, since the five countries are at different levels of implementation of payment and settlement systems, provision has been made under the capacity building component for study tours, including exchange programs between the NCBs to exchange expertise and experience In terms of availability of resources for project operational and recurrent costs, postimplementation, cost recovery charges, which are already in place in some of the EAC Partner States, would contribute to the sustainability of the associated payment and settlement systems. The arrangement involves user-charges by the NCBs (owners of the systems) on the commercial banks and other participants, on a pro rata basis, for the use of the systems. The participants, in turn, recover the resulting charges through the banking fees charged to their customers. Additional charges to customers are usually limited, given the large volume of transactions. It is also expected that the increased efficiency delivered by the new systems will encourage further reduction in charges. As part of the harmonization process, consideration must be given to the harmonization of the cost recovery charges currently in place in the countries to ensure that they are equitable across the EAC region With regard to technical sustainability, the technologies to be employed for component 1 of the project are standard industry technologies that have been well tested and deployed worldwide. For instance, SWIFT is a proven message carrying service available on a global basis. In addition, the service providers for the new systems will be required to provide extensive training for the personnel of the NCBs and the Commercial Banks that would operate the systems. Capacity building is a key component of the project, and will ensure that participant s staff is adequately trained and that they receive regular skills upgrades when 14

26 necessary. An assessment of the appraisal team shows that business continuity and disaster recovery arrangements are in place in EAC countries. However, business continuity in Burundi and Kenya, and disaster recovery arrangements in Tanzania and Rwanda would be further strengthened. This is provided for under component 1 of the project (see table 2.1) With regard to the responsibility for coordination, after the implementation stage of the project, the proper functioning of the proposed EAC Monetary Union would require the establishment of the East African Central Bank (EACB) whose primary objective shall be to achieve and maintain price stability in the single currency area. The EACB shall, together with the NCBs, form a functionally integrated region-wide system of Central Banks that shall perform the Central Bank functions in the Monetary Union. However, in the transition period, there will be an Institution, as a precursor to the establishment of the EACB, to coordinate the monetary and exchange rate policy and all the preparatory work towards the Single Currency. The responsibility for coordination and maintenance of the proposed EAC Payment and Settlement Systems Integration Project will be transferred to this organ as soon as it is established. 4.5 Key Risks and Mitigation Measures 11 Risks Risk 1: Full functionality of the integrated systems if the new systems are not fully implemented at national levels. Risk 2: Possible lack of commitment of the Commercial Banks to the new payment systems. Risk 3: Systems failure and systemic risk posed by having EAC Partner States with mixed levels of readiness and payment systems automation and standards. Risk 4: Technical Solutions may not be sustained Risk 5: Possible constraints of required project implementation capacity which could delay project implementation. 4.6 Knowledge Management Table 4.2: Risks and Mitigation Measure Mitigation Measures This risk is mitigated by continued commitment and ownership of the new systems by the Central Banks. In fact, they have also initiated investments that are complementary to the components being provided by the proposed project. The proposed project is therefore intended to fill the gap. This risk is mitigated given the commercial benefits that the new systems would provide to the Commercial Banks. The Commercial Banks have been placing demands on the NCBs regarding the need to modernize and integrate the national payment systems. They have also initiated investments to upgrade their infrastructure in anticipation of new payment systems. The arrangements for implementing the project also ensure that the Commercial Banks are fully involved in its implementation as members of the NPSCs. Business continuity and disaster recovery plans are in place in all the NCBs. These plans were assessed during the appraisal mission and found acceptable. However, as a further mitigation measure, the business continuity arrangements in Burundi and Kenya and disaster recovery arrangements in Tanzania and Rwanda would be further strengthened. This risk is mitigated because the technologies to be employed for component 1 of the project are standard industry technologies that have been well tested and deployed worldwide. Moreover, Capacity building is a key component of the project, and will ensure that participant s staff is adequately trained and that they receive regular skills upgrades when necessary. The project has provided for the recruitment of a Payment and Settlement Specialist, a Procurement Expert and an Accountant to strengthen the implementation capacity of the EAC CPT. In addition, the NCBs, shall provide the necessary technical expertise throughout the procurement process thereby reducing any residual risk. The project provides for trainings and workshops The implementation of the PSSIP will result in the development of skills and knowledge in specific areas of payment and settlement systems operations and functions for the EAC Secretariat, National Central Banks, and Commercial Banks. This knowledge will be disseminated through seminars and workshops organized by the National Central Banks and Bankers Associations. Also, the implementation of the capacity building component of the project will result in knowledge building for Judges and judicial officers at the EACJ and national courts, as well as members of the EALA. This knowledge will be disseminated through applications of the knowledge, law of precedence, and seminars and workshops. The EAC- PSSIP will contribute to knowledge building and development of skills in specific areas of payment and settlement systems for the EAC Secretariat (including the EAC-CPT), National 11 Risks relating to Financial Management are discussed in Technical Annex C3 15

27 Central Banks, Commercial Banks, Judges and other stakeholders who would be trained in, but not limited to, such disciplines as; the requirement for adequate legislation to support both national and regional payment systems that are in-line with the BIS CPSIPS; settlement finality; legality of electronic payment instruments; soundness of computer records/image s etc. as prima facie evidence; commercial law and enforcement of collateral requirements, the resolution of contractual disputes, especially in relation to payment and settlement systems. This will contribute significantly to the legislative capacity in the region in the regulatory and legal elements of payment and settlement systems together with; dispute resolution in the area of payment and settlement systems so as to effectively address the concerns of the business community and the public and build the professional capacity to effectively manage the increasing national and cross-border complex commercial and personal transactions. Legal officers at the National Central Banks and Commercial Banks would also be trained in legal aspects of payment and settlement systems. Other groups that would be targeted by the training programmes under the project will include; Ministries of Finance, Capital Market Authorities, Stock Exchanges, Revenue Authorities, and Customs. V. LEGAL INSTRUMENTS AND AUTHORITY 5.1 Legal Instrument The Grant Protocol of Agreement between the East African Community and the African Development Bank for an amount of ADF Grant of UA 15.0 million from the Regional Operation Envelope. 5.2 Conditions Associated with Bank s Intervention The ADF Grant Protocol of Agreement shall enter into force on the date of signature by the East African Community and the African Development Fund. The first disbursement of the grant shall be subject to effectiveness of the Grant Protocol of Agreement and fulfillment by the Grantee, to the satisfaction of the Bank of the following specific conditions: A. Conditions Precedent to First Disbursement: The obligations of the Fund to make the first disbursement of the Grant shall be conditional upon the entry into force of the Protocol of Agreement and the Recipient having provided evidence satisfactory to the Fund of the fulfillment of the following conditions. (i) The Recipient shall submit a commitment letter jointly signed by all the Central Bank Governors of the respective Partner States endorsing the Project; (ii) (iii) (iv) (v) The Recipient shall open a foreign currency account for the deposit of the proceeds of the Grant; The signing of Implementation Agreements between the Recipient and Partner States for the implementation of the Project at the national level of the respective Partner States; The designation of a Regional Core Project Team by the Recipient with the EAC Director of Planning as the Regional Project Coordinator, Monitoring and Evaluation Expert and an Information and Technology Expert, whose terms of reference are acceptable to the Fund; and The constitution of National Core Project Teams at the Central Banks of Burundi, Kenya, Rwanda, Tanzania and Uganda, with the respective heads of departments responsible for Payment Systems as the National Project Coordinator, whose terms of reference are acceptable to the Fund. 16

28 B. Other Conditions: The Recipient shall provide evidence, in form and substance satisfactory to the Fund, that National Payment System Committees (NPSC) in Burundi, Kenya, Rwanda, Tanzania and Uganda have been established with members and terms of reference acceptable to the Fund. 5.3 Compliance with Bank Policies This project complies with all applicable Bank policies. VI. RECOMMENDATION 6.1 Recommendations: Management recommends that the Board of Directors approve the proposed Grant, not exceeding UA 15.0 million, to the East African Community from the ADF (Regional Operations envelop) to finance the activities discussed in this report. 17

29 APPENDIX 1: EAC - SELECTED MACROECONOMIC INDICATORS Macroeconomic Indicators ( e ) (p) (p) Real GDP Growth Rate (%) GDP Per Capita (US $) Real per Capita GDP Growth Rate (annual %) Inflation (%) Fiscal Balance (% of GDP) Gross Domestic Investment (% of GDP) Gross National Savings (% of GDP) Real Export Growth, Goods (%) Real Import Growth, Goods (%) Terms of Trade, Goods (%) Trade balance (As % of GDP) Current Account (% GDP) Remittances inflows (USD Billion) FDI Inflows (USD Billion) Net total ODA (USD Million) Total External Debt (% GDP) Debt Service (% of Exports) Source: AfDB Statistics Department, UNCTAD and IMF. I

30 APPENDIX 2: BANK PUBLIC SECTOR PORTFOLIO IN EAC COUNTRIES II Fin Source /Inst Bank Financing (UA mil) Updated : Approval Date 31-May-12 Completio n Date Sector Project Title KENYA Agriculture ASAL-Based Livestock and Rural Livelihoods Support Project ADF-Loan /Dec/03 30/Dec/12 ADF-Grant /Dec/03 30/Dec/12 Kimira- Oluch Smallholder Farm Improvement Project ADF-Loan /May/06 30/Sep/13 ADF-Grant /May/06 30/Sep/13 Small-Scale Horticulture Development Project ADF-Loan /Sep/07 31/Dec/14 Restoration of Farm Infrastructure (Rural Livelihood Rehab. & Recon.) ADF-Loan /Apr/09 30/Jun/13 Green Zones Developmemt Support Project ADF-Loan /Oct/05 31/Dec/13 Environment Ewaso Ng'ïro North Natural Resources Conservation Project ADF-Loan /Apr/05 31/Dec/12 ADF-Grant /Apr/05 31/Dec/12 Power Mombassa Nairobi Transmission Line ADF-Loan /May/09 31/Dec/13 Kenya Elec Transmission Project ADF-Loan /Dec/10 30/Jun/15 Menengai Geothermal Development project ADF-Loan /Dec/11 31/Dec/17 Social Community Empowerment Project (CEISP) ADF-Loan /Dec/07 31/Jul/14 Technical Industrial Vocational and Entrepreneurship Training (TIVET) ADF-Loan /Dec/08 31/Dec/13 Education III Project ADF-Loan /Dec/03 30/Dec/12 ADF-Grant /Dec/03 30/Dec/12 Rural Health Project III ADF-Loan /Jul/04 30/Aug/12 ADF-Grant 6.0 7/Jul/04 30/Aug/12 Nairobi - Thika Highway Improvement Project ADF-Loan /Nov/07 31/Dec/12 ADF-Loan /Nov/07 31/Dec/12 Timboroa - Eldoret Road Project ADF-Loan /Nov/10 29/Feb/16 Water Sup/Sanitation Integrated Land & Water Management (AWTF) ADF-Loan /Jan/09 31/Dec/12 Water Services Boards Support Project ADF-Loan /Nov/07 31/Dec/12 RWSSI-Grant 9.2 5/Dec/07 31/Dec/12 Nairobi River Basin Restoration ADF-Loan /Dec/10 31/Dec/15 Small Towns Water and Sanitation ADF-Loan /Nov/09 31/Dec/14 BURUNDI Power Réhabil. et Exten. infrastructures élec ADF-Grant 7.3 5/Jul/07 30/Sep/12 Social Projet multisectoriel de réinsertion (Loan) ADF-Grant /Dec/04 30/Nov/12 Projet de Creation d'emplois ADF-Grant /Jun/09 31/Dec/13 Transport Projet Gitega- Nyangungu-Ngozi Phase 1 FSF-Grant /Sep/10 31/Dec/13 Projet Gitega-Ngozi Phase 2 FSF-Grant /Jun/11 31/Dec/15 ADF-Grant /Jun/11 31/Dec/15 Route Nyamitanga-Ruhwa-Ntendezi-Mwityazo ADF-Grant /Dec/08 31/Dec/13 Water Sup/Sanit Projet de Rehabilitation et d'extension des Infrast. Hydrauliques en Milieu Rural ADF-Grant /Dec/05 30/Dec/12 Réhabil. et Exten. infrastructures élec ADF-Grant 7.3 5/Jul/07 30/Sep/12 RWANDA Agriculture Inland Lakes Int Development & Managementt Support Project (PAIGELAC) ADF-Loan /Oct/04 31/Dec/12 ADF-Grant 1.0 6/Oct/04 31/Dec/12 Bugesera Agricultural Development Support Project (PADAB) ADF-Grant /Jul/06 31/Dec/13 PPF LISP ADF-Grant /Nov/10 31/Dec/12 Livestock Infrastructure Support Program (LISP) - SBS ADF-Loan /Jun/11 31/Dec/15 Transport Butare-Kitabi-Ntendezi Road ADF-Grant /Mar/09 31/Dec/13 Rwanda-(Nyamitanga-Ruhwa-Ntendezi-Mwityazo Rd) ADF-Grant /Dec/08 31/Dec/13 Sustainable management of woodlands and restoration of natural forests of Rwanda CBFF-Grant /Nov/11 31/Dec/15 Water Sup/Sanit Rural Water and Sanitation-Phase II (AEPA) ADF-Grant /Jul/09 31/Dec/13 Social Support to Skills Development in Science & Tech ADF-Grant /Nov/08 31/Dec/13 Regional ICT Centre of Excellence ADF-Loan /Dec/10 30/Jun/16 Multisector Competitiveness & Enterprise Development ADF-Grant /Dec/08 31/May/13 Support for Policy and Strategy Development ADF-Grant /Sep/09 31/Dec/12 TANZANIA Agriculture District Agricultural Sector Investment Project ADF-Loan /Nov/04 31/Dec/13 ADF-Grant /Nov/04 30/Jun/12 Support the Lake Tanganyika Integrated Regional Development Programme (PRODAP) ADF-Loan /Nov/04 31/Dec/13 Marketing Infrastructure, Value addition and Rural Finance Program (MIVARFP) ADF-Loan /Jun/11 31/Dec/16 Transport Zanzibar Roads Upgrading Project (ZNZ only) ADF-Loan /Jun/04 30/Sep/12 ADF-Grant /Jun/04 31/Dec/07 Singida-Babati-Minjingu Road Project ADF-Loan /Sep/07 31/Dec/14

31 Tanzania Road Sector Support I ADF-Loan /Dec/09 31/Dec/15 Tanzania Road Sector Support II ADF-Loan /Apr/12 Water Sup/Sanit Rural Water Supply and Sanitation Programme II ADF-Loan /Sep/10 31/Dec/15 AWTF-Grant /Sep/10 31/Dec/15 Zanzibar Water & Sanitation Project (ZNZ only) ADF-Loan /Nov/08 31/Dec/13 AWTF-Grant /Nov/08 31/Dec/13 14-De- Power Electricity V Project ADF-Loan /Dec/12 14-De /Dec/12 ADF-Grant 1.32 Iringa-Shinyanga Transmission Line ADF-Loan /Oct/10 31/Dec/14 Social Support to SAP for Vocational Ed & Training ADF-Loan /Jul/03 30/Jun/12 ADF-Grant /Jul/03 30/Jun/12 Support to Maternal Mortality Reduction Project ADF-Loan /Oct/06 31/Dec/12 Small Entrepreneurs Loan Facility II ADF-Loan /May/10 31/Dec/15 Alternative Learning and Skills Development II (ZNZ only) ADF-Loan /Jun/11 31/Dec/16 Multisector Institutional Support for Good Governance II ADF-Loan /Sep/10 31/Dec/14 Poverty Reduction Support Loan IV ADF-Loan /Dec/11 31/Dec/13 UGANDA Agriculture Farm Income Enhancement& Forestry Conservation project ADF-Loan /Sep/04 30/Dec/12 ADF-Grant /Sep/04 30/Dec/12 Community Agricultural Infrastructure Improvement Programme- Project I ADF-Loan /Jan/07 31/Dec/13 Community Agricultural Infrastructure Improvement Programme- Project II ADF-Loan /Sep/08 31/Dec/14 Markets and Agricultural Trade Improvement (MATIIP) ADF-Loan /Mar/09 30/Sep/15 Community Agricultural Trade Improvement Programme III ADF-Loan /May/11 31/Dec/16 Transport Road Sector Support Project 1 (Kabale Kisoro Bunagana Rd) ADF-Loan /Apr/05 29/Dec/12 ADF-Grant /Apr/05 29/Dec/12 Road Sector Support Project 1 supplementary Loan ADF-Loan /Dec/06 29/Dec/12 Road Sector Support Project 2 (Fort portal Bundibugyo Rd) ADF-Loan /Dec/07 31/Dec/13 ADF-Grant /Dec/07 31/Dec/13 Road Sector Support Project 3( Nyakahaita Ibanda Rd) ADF-Loan /Sep/09 31/Dec/14 Water Sup/Sanit Kampala Water Sanitation Project ADF-Loan /Dec/08 31/Dec/14 Water Supply and sanitation program ADF-Loan /May/11 30/Jun/16 ADF-Grant /May/11 30/Jun/16 Social Support to Post Primary Education and Training Project (Education III) ADF-Grant /Dec/05 30/Apr/12 Support to the Health Sector Strategic Plan II ADF-Loan /Nov/06 31/Dec/12 Rehabilitation of Mulago and KCC Clinics ADF-Loan /Jul/11 31/Dec/16 Support to Post Primary Education and Training Project (Education IV) ADF-Loan /Nov/08 31/Dec/14 Rural Income and Employment Enhancement Project ADF-Loan /Nov/09 31/Jul/15 Industry/Mine Mineral Resources Management & Capacity Building Project ADF-Grant /Sep/04 31/May/12 Power Bujagali Transmission Interconnection Project ADF-Loan /Jun/07 31/Dec/13 Mbarara-Nkenda/Tororo-LiraTransmission Lines Project ADF-Loan /Dec/08 31/Dec/13 MULTINATIONAL Agriculture Programme d'amenagement Lac Tanganyika - Burundi ADF-Loan /Nov/04 31/Dec/13 Projet Developpement Rural du Bugesera (Burundi, Rwanda) ADF-Grant /Sep/09 31/Dec/15 Strengthening Institutions for Risk Management of Transboundary Animal Diseases in the SADC Region Project (TZ Comp: 3.69 mill UA) (Tan/Malawi/Angola/Moz/Zam) ADF-Grant /Jul/06 31/Dec/12 Transport East Africa Trade & Transport (EAC, NCTTCA, TTFA) ADF-Grant /Nov/06 31/Dec/12 Mombasa-Nairobi-Addis Corridor II (Kenya, Ethiopia) ADF-Loan /Jul/09 31/Dec/15 Mombasa-Nairobi-Addis Corridor III (Kenya, Ethiopia) ADF-Loan /Nov/11 31/Dec/17 Arusha- Namanga-Athi River Road Development-Kenya (Kenya, Tanzania) ADF-Loan /Dec/06 31/Dec/12 ADF-Grant /Dec/06 31/Dec/12 Phase 2 Chemin Fer DSM/Isaka-Kiga/Keza-Musongati ADF-Grant /Nov/09 31/Dec/12 Social African Virtual University (Phase II) ADF-Loan /Dec/11 30/Jun/17 Power Interconnection of Electric Grids of Nile Equatorial Lakes Countries (NELSAP) - (Burundi, Kenya, Uganda, Dr Congo, Rwanda) ADF-Loan /Nov/08 31/Dec/14 ADF-Grant /Jun/10 31/Dec/14 Water Sup/Sanit Lake Victoria Water and Sanitation Programme ADF-Grant /Dec/10 31/Dec/15 Songwe River Basin Development Programme (Malawi and Tanzania) AWTF-Grant /May/10 31/Dec/14 NEPAD/IPPF- Grant /May/10 31/Dec/14 SADC Shared Watercourses Support Project (Tan/Zim/Moz) ADF-Grant /Jan/06 30/Dec/12 ADF-Loan /Dec/09 31/Dec/12 III

32 IV APPENDIX 3