PCR: Papua New Guinea: Microfinance and Employment Project · 1. At the time the Microfinance and...

Completion Report

Project Number: 32472 Loan Number: 1768 September 2011

PNG: Microfinance and Employment Project

CURRENCY EQUIVALENTS

Currency Unit – kina (K)

At Appraisal At Project Completion (15 Sep 2000) (30 Jun 2010)

K1.00 = $0.3700 $0.3797 $1.00 = K2.703 K2.6336

ABBREVIATIONS

ADB – Asian Development Bank BPNG – Bank of Papua New Guinea IBBM – Papua New Guinea Institute of Banking and Business

Management MCC – Microfinance Competence Centre MFI – microfinance institution MIS – management information systems NMB – Nationwide Microbank PIU – project implementation unit PNG – Papua New Guinea RFF – revolving finance facility

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2010 ends on 31 December 2010.

(ii) In this report, "$" refers to US dollars.

Vice-President B.N. Lohani, Vice-President-in-Charge, Operations 2 Director General R. Wihtol, Pacific Department (PARD) Director E. Zhukov, Pacific Liaison and Coordination Office, PARD Team leader M. Lucich, Senior Economics Officer, PARD Team member M. de Villa, Associate Project Analyst, PARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA I

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 7 I. Performance of Consultants, Contractors, and Suppliers 7 J. Performance of the Borrower and the Executing Agency 8 K. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 8

A. Relevance 8 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Outputs 10 D. Preliminary Assessment of Sustainability 10 E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 11

A. Overall Assessment 11 B. Lessons 12 C. Recommendations 12

1. Project Related 12 2. General 13

DESIGN AND MONITORING FRAMEWORK 14

ANNUAL DISBURSEMENTS BY CATEGORY 18

ANNUAL DISBURSEMENTS—PROJECTED VS ANNUAL 19

STATUS OF COMPLIANCE WITH LOAN COVENANTS 20

OVERVIEW OF PROCUREMENT OF CONSULTING SERVICES 28

BASIC DATA

A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Original Amount of Loan 7. Net Loan Amount 8. Project Completion Report

Number

Papua New Guinea 1768 Microfinance and Employment Project Independent State of Papua New Guinea Bank of Papua New Guinea SDR7,357,000 ($ 9,600,000) SDR5,686,538 ($ 8,481,768) PCR: PNG 1257

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

19 June 2000 7 July 2000 4 September 2000 7 September 2000 19 October 2000 26 February 2001 28 May 2001 20 September 2001 1 31 December 2006 18 November 2010 2 1.0% (grace period) and 1.5% (amortization period) 32 8

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8. Disbursements a. Dates

Initial Disbursement

11 March 2002

Final Disbursement

22 October 2010

Time Interval

103 months

Effective Date

20 September 2001

Original Closing Date

31 December 2006

Time Interval

63 months

b. Amount (SDR)

Category No.

Category or Subloan

Original Allocation

Partial Cancellations

Last Revised

Allocation

Amount Disbursed

Undisbursed Balance

(1) (2) (3) (4 = 3 - 5) (5) (6) (7 = 5 - 6)

01 Vehicles & equipment

503,000 269,999 233,001 233,001 0

02A International consultants

1,645,000 (611,016) 2,256,016 2,256,016 0

02B Domestic consultants

435,000 111,360 323,640 323,640 0

03A Trainer upgrading 310,000 236,670 73,330 73,330 0 03B In-house training 302,000 (57,509) 359,509 359,509 0 03C On-the-job

training 115,000 87,086 27,914 27,914 0

04 Networking & public awareness

410,000 (87,647) 497,647 497,647 0

05A Office supplies & communication

109,000 (165,767) 274,767 274,767 0

05B Travel, steering, & reporting

406,000 (88,098) 494,098 494,098 0

06 Review and audit 77,000 47,312 29,688 29,688 0 07 Finance fund 2,146,000 2,146,000 0 0 0 08 Pilot

microbanking equity

96,000 (836,927) 932,927 932,927 0

09 IDC 184,000 0 184,000 184,000 0 10 Unallocated 619,000 619,000 0 0 0 Total 7,357,000 1,670,462 5,686,538 5,686,538 0

Total $

Equivalent

9,600,000 1,118,232 8,481,768 8,481,768 0

( ) = negative, IDC = interest during construction.

9. Local Costs (Financed) - Amount ($) 3,170,877 - Percent of Local Costs 41 - Percent of Total Cost 37

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C. Project Data

1. Project Cost ($‘000)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 9,133 6,219 Local Currency Cost 11,379 7,690 Total 20,512 13,909

2. Financing Plan ($‘000)

Cost Appraisal Estimate Actual

Implementation Costs Borrower Financed 4,669 3,029 ADB Financed 9,595 8,482

Bank of Papua New Guinea 434 654 IBBM 1,225 836 AusAID 909 909

Sub-total 16,833 13,909

MFIs 3,680 (…)a

Total 20,512 13,909

(…) = data not available, ADB = Asian Development Bank, AusAID = Australian Agency for International Development, IBBM = Papua New Guinea Institute of Banking & Business Management, MFI = microfinance institutions. a

The contribution by MFIs was not measured during project implementation.

3. Cost Breakdown by Project Component ($‘000)

Component Appraisal Estimate Actual

Microfinance Competence Centre 5,886 7,235 New savings and loan products 3,545 3,886 Revolving finance facility 7,585 0 Project implementation unit 815 2,507 Physical contingencies 529 0 Price contingencies 1,912 0 Interest during project implementation 240 281

Total 20,512 13,909

Note: Actual contingency costs have been included in the actual component costs.

4. Project Schedule

Item Appraisal Estimate Actual

Date of Contract with Consulting Firm 2001 2002 Procurement of International Consultants N/A 2002–2009 Procurement of Domestic Consultants 2001–2006 2001–-2007 Procurement of Vehicles 2001 2001–2002 Procurement of Equipment 2001–2002 2001–2010 Start of Project Activities 2001 2002 Training and Workshops 2001–2006 2002–2010 Project Completion 2006 2010

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5. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives Implementation Progress

From 20 Sep 2001 to 30 Sep 2002 S PS From 01 Oct 2002 to 30 Jun 2010 S S

PS = partly satisfactory, S = satisfactory.

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-

Days

Specialization of Members

Appraisal Mission 19 Jun–7 Jul 2000 Inception 5–15 Aug 2001 2 15 a, b Special Loan Administration Review 30 May–2 Jun 2002 1 4 c Review 15–20 Nov 2002 2 8 a, b Special Loan Administration Review 17–19 Feb 2003 2 4 a, b Review 26 Jun 2003 2 2 a, b Review 24–28 Nov 2003 1 5 a Review 21–22 Apr 2004 1 2 a Review 5–6 May 2004 1 2 b Review 28–30 Sep 2004 2 5 a, b Review 07–24 Mar 2005 2 21 b, d Midterm Review 6–17 Jun 2005 2 24 b, d Review 6–10 Aug 2007 3 15 b, d Review 6–16 Oct 2008 2 22 b, d Special project administration 25–29 May 2009 1 5 e Special project administration 31 Aug–4 Sep 2009 1 4 e Review 16–20 Nov 2009 1 5 e Project completion review 9–13 May 2011 2 8 a, e a = project economist, b = operations officer, c = procurement specialist, d = country programs specialist, e = private sector development specialist.

I. PROJECT DESCRIPTION

1. At the time the Microfinance and Employment Project was appraised, the Government of Papua New Guinea (PNG) was increasingly concerned about evidence that the percentage of the population living below the international poverty line of $1 per capita per day was growing. This was largely attributable to an incomplete transition from subsistence to a modern, cash-based economy. Poverty in PNG is directly linked to the inability of families to earn cash income to pay for school fees, health care, and other nonfood items and to save for future needs and hardships. Because the formal sector could provide few jobs, income-earning opportunities for most of the population would have to come from smallholder agriculture and micro and small enterprises in agroprocessing and trading. A limited availability and lack of access to financial services was, however, among the factors inhibiting growth of the micro and small enterprise sector. 2. An institutional gap in PNG’s financial system had left micro and small enterprises, semi-subsistence farmers, and poor households without any financial services. Microfinance institutions (MFIs) were scattered across PNG and operated in isolation. The knowledge of microfinance best practice was limited and the ability to design savings and loan products appropriate to client needs was nonexistent. None of the existing service providers had the institutional capacity to achieve sustainability in the near to medium term. Support for microfinance initiatives was needed to enhance their institutional capacity, ensure sustainable delivery of microfinance services to a large number of micro and small enterprises, and provide savings facilities for the poor and others who had no access to them. 3. The project was approved by the Board of Directors of the Asian Development Bank (ADB) in October 2000.1 Its overall objective was to contribute to economic growth through private sector development, employment creation, and development of the financial system. Its goal was to reduce poverty and integrate the majority of the poor into the mainstream development process. The project’s specific objective was to provide sustainable microfinance services to viable enterprises and savings services to the population at large. It aimed at achieving its specific objective by building the institutional capacity of potentially sustainable MFIs. It comprised three components:

(i) Component A: Microfinance Competence Centre. The project was to help the government establish the Microfinance Competence Centre (MCC) within the PNG Institute of Banking and Business Management (IBBM) to enhance the institutional capacity of MFIs. The MCC was to set up a network linking existing microfinance service providers and thereby creating a forum for policy implementation. Through the MCC, the project was to institutionalize the local capacity building needed to provide the expertise and technical skills to expand microfinance services.

(ii) Component B: new savings and loan products. This component was to develop

and test new loan products and delivery methods for financial services and help MFIs implement them. A microbanking pilot scheme was to be designed, established, and operated in Wau, a remote town in Momase, then the poorest of PNG’s four regions. The scheme was to be a replicable institutional model and accelerate growth of the MFI industry through its demonstration effects.

1 ADB. 2000. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Papua New

Guinea for the Microfinance and Employment Project. Manila.

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(iii) Component C: revolving finance facility. Because expansion of the loan portfolios of MFIs was seen to be an important factor in achieving their sustainability, the project was to establish a revolving finance facility (RFF) that would provide credit lines and equipment loans to eligible MFIs for lending to micro and small enterprises.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. At the time of appraisal, ADB’s country operational strategy for PNG emphasized the importance of financial services to the country’s economic and social development and recognized the need to improve access to financial services, particularly in rural areas and for the poorer strata of the population. ADB strategy was in line with several of the government’s policies at the time, including its Medium Term Development Strategy 1997–2002, which emphasized the importance of private sector development. The design of the project components was also strongly influenced by the lessons learned and insights gained from microfinance schemes supported by the Australian Agency for International Development and the European Union in PNG, ADB’s own completed and ongoing microfinance projects in Asia and the Pacific, and current international best practices in microfinance. The project was designed through a project preparatory technical assistance.2 5. The original project design relied on assumptions about the state of and potential for development in the microfinance industry in PNG that later proved unrealistic. The original estimate was that 40 potentially sustainable existing and new MFIs would participate in project activities. During the appraisal mission, however, fewer than 10 active MFIs were identified and only two were of significant size. These two, Village Finance and Liklik Dinau Arbitore Trust, failed and closed down shortly after project activities began. The potential for either identifying or developing up to 40 MFIs during the 4-year project period turned out to be low. The design also incorrectly assumed that the microbanking pilot scheme would succeed rapidly and that the model would be replicated by new microfinance institutions during the implementation period. 6. The project framework was revised substantially in 2005. Based on progress to date and with the agreement of the stakeholders, ADB simplified the performance indicators and set more realistic targets for the components. It was also agreed that the microbanking pilot scheme would be incorporated and divested. New performance indicators were introduced to reflect this new objective. Component C, the RFF, was cancelled during the midterm review. Evidence from the market and the main MFIs indicated that the demand was much greater for savings products than for borrowing. The need for MFIs to refinance their loan portfolios was therefore low. In addition, savings deposits were a less costly source for potential MFI lending than funding from an RFF. The midterm review also found a need for more capacity building to help MFIs intermediate effectively between savers and borrowers. The funds for the cancelled RFF were reallocated to other project components. The government agreed to provide an additional equity contribution to the microbanking pilot scheme from the funds that it had been due to contribute to the RFF. It was also agreed to extend the project by 2 years to 31 December 2008 to finalize all the objectives. 7. In May 2009, ADB approved (i) a government request to extend the project another 18 months to 30 June 2010; (ii) a minor change in scope and implementation arrangements; and (iii)

2 ADB. 1999. Technical Assistance Report on Papua New Guinea Microfinance and Employment. Manila.

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a reallocation of loan proceeds. At the time, the project had approximately SDR2.7 million ($4.1 million) available for commitment. Out of this amount, SDR1.6 million ($2.4 million) was cancelled, while a budget of SDR1.1 million ($1.7 million) was agreed with the government to complete activities recommended by ADB microfinance consultants. The activities were to build on the successes achieved by the project to date and prepare for a next-phase microfinance project in the country, and included (i) pilot-testing financial education and linkages between microbanks and second-tier (informal) MFIs; (ii) capacity building support to Nationwide Microbank (NMB), which had grown out of the former microbanking pilot scheme, in internal audit and risk management and human resources; and (iii) the funding of a portion of the cost of acquisition of branchless banking technology for NMB. B. Project Outputs

8. The revised design and monitoring framework of the project, including actual achievements, is in Appendix 1. The original project framework at appraisal was changed significantly in 2005 as part of the midterm review. The framework was also updated in 2009 to incorporate performance targets for the activities to be undertaken in 2009 and 2010. Several targets that had been achieved by 2008 were discontinued at this time. 9. Overall, the project has been effective in achieving the outcomes and outputs of the revised and updated project framework. Most of the performance targets have been achieved or substantially surpassed, either as originally set or as updated.

1. The Capacity of Microfinance Institutions Strengthened through New Microfinance Competence Centre.

10. The MCC was established within the IBBM in the first 6 months of project operations and training was offered to microfinance practitioners from June 2003. The first MCC business plan was drawn up in September 2004 and was reviewed regularly. The business plan prepared in the fourth quarter of 2008 showed it was unlikely that the MCC would be sustainable in the short to medium term. It needed to expand its services and would probably require continued external funding. Under the new ADB-financed Microfinance Expansion Project, the MCC will be replaced by the National Centre for Financial Inclusion to broaden the scope of activities and facilitate sustainability. 3 11. Through the MCC, the project designed more than 10 microfinance training modules, 6 distance learning modules, and a financial literacy program. The MCC delivered more than 9,200 person-days of training to practitioners from 21 formal and informal microfinance institutions during 2003–2008 and achieved the original target that an average of 1,500 person-days of training be delivered per year. 4 Since 2009, the IBBM and its trainers continue to provide microfinance training modules on a commercial basis. The MCC also assisted MFIs directly in various aspects of institutional development and had provided more than 15 person-months of such technical assistance per year by the end of 2008. Between 2004 and 2008, the MCC conducted institutional assessments and outlined development plans for improvements for

3 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Papua New

Guinea for the Microfinance Expansion Project. Manila. Cofinanced by the Australian Agency for International Development.

4 Institutions that participated in MCC training programs and that continue to offer microfinance services include:

East New Britain Savings & Loan Society, Kokopo Microfinance, Manus Savings and Loan Society, Milne Bay Microfinance, National Development Bank, National Farmers Savings and Loan Society, Niu Ailan Savings and Loan Society, NMB, PNG Microfinance, and Sepik Savings and Loan Society.

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eight MFIs. The MFIs were assisted in developing appropriate management information systems (MIS) and business and operational plans. The project also submitted a draft legal microfinance framework to the Bank of Papua New Guinea (BPNG), although it was not adopted. Institutions are currently regulated under the Banks and Financial Institutions Act and the Savings and Loan Society Act. To date, the BPNG has not found the absence of a specific microfinance legal framework to be an obstacle to the development of the sector. In 2008, the BPNG created a microfinance unit within its Banking Supervision Department. Its capacity will be strengthened under the Microfinance Expansion Project (footnote 3). Furthermore, the project supported the establishment of a credit bureau, PNG Credit and Data Bureau, in 2008, which now operates profitably and provides credit information to the financial sector. The project also supported the launch of the PNG Association of Microfinance Institutions in 2009.

2. New Savings and Loan Products and Delivery Methods Developed, Tested, and Implemented.

12. The project has helped MFIs to develop innovative and demand-driven new products and to redesign existing products to make them more sustainable and better suited to the needs of customers. During 2002–2008, 30 new savings and loan products were developed and tested and 7 were redesigned. Many of the new products were tested through the microbanking pilot scheme in Wau, with a view to replication by other MFIs. The uptake of new savings products has been particularly good. Loan product uptake has been limited by restrictions under the Savings and Loan Society Act on the types of loans savings and loan societies can offer. The project also launched downscaling pilots with two large licensed finance companies and the National Development Bank (then Rural Development Bank) in 2003. These pilots were aimed at introducing a new clientele to the services of institutions that traditionally had not provided microfinance services. The pilots were completed in 2005. The National Development Bank continues to deliver microfinance loan products, although with limited results. 13. After some initial tactical adjustments, the microbanking pilot scheme became one of the most visible and successful outputs delivered by the project. When launched in 2004, its main objectives were to (i) attain sustainability, (ii) be a role model for other MFIs, and (iii) act as a greenfield laboratory for testing new savings and loan products. It quickly became apparent that the scheme faced several issues. Whereas sustainability had been expected at appraisal to come in 1 year, the consultants realized that the pilot location in the small, remote township of Wau was a handicap and sustainability would likely not be achieved before the third or fourth year. In addition, the goal of sustainability was not necessarily consistent with the objective of testing new products. The BPNG granted permission for the scheme to expand to Lae, where it would have access to a bigger market. It was agreed with the government, the executing agency and stakeholders during the midterm review that the scheme would be incorporated as Wau Microbank, that the government would provide additional equity funding, and that the bank would be partially divested to the private sector. During project implementation, the bank continued to expand to new areas. It changed its name to NMB in 2008 and was granted a full banking license by the BPNG. Partial privatization was achieved in 2008, when a landowner company became a shareholder in NMB. In 2009 and 2010, the project provided additional capacity building support to NMB in internal audit and risk management and human resources. Approved funding support for a portion of the cost of acquisition of branchless banking technology for NMB did not eventuate before the closing of the project, as NMB was still developing its proposed branchless banking strategy. NMB is now the biggest MFI in PNG and the South Pacific and serves more than 100,000 active customers with savings accounts through 14 branches.

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14. From July 2009 until June 2010, the project supported a pilot program of financial literacy training and linkages between NMB and second-tier MFIs. The second-tier MFIs carried out financial literacy training for potential clients, the majority of whom lived in rural areas. After the training, access to savings services was provided through the MFIs, in partnership with NMB. Pilots were carried out with the Ambumangre Catholic Women’s Credit Scheme in Chimbu Province, Bogia Cooperative Society in Madang Province, Sepik Savings and Loan Society in East Sepik Province, and Capital Development Assistance in the Autonomous Region of Bougainville. Overall, more than 7,000 people received financial literacy training and access to financial services. The pilots were considered successful, although the linkages between NMB and the second-tier MFIs could have been strengthened. The lessons learned influenced the design of the Microfinance Expansion Project, which includes a large-scale financial literacy program targeting 120,000 people over 7 years (footnote 3).

3. A Revolving Finance Facility.

15. The RFF that was to be established to provide funding for the growth of MFIs’ loan portfolios was cancelled following the midterm review. As the demand for savings products in PNG was and continues to be much greater than that for borrowing products, savings deposits were found to be a cheaper source of funds for MFIs than funds supplied through an RFF. C. Project Costs

16. The original project cost estimate and the actual project costs are shown in section C of the Basic Data section, while the breakdown and utilization of loan funds are shown in section B. At appraisal, the project cost was estimated at $20.5 million, including a contribution of $3.7 million by MFIs. The actual cost was $13.9 million, excluding the contribution by MFIs, which was not measured during project implementation. Of the approved ADB loan amount of SDR7.4 million, SDR1.7 million was cancelled. This partial cancellation reflects (i) the lower than expected expenditure financed by ADB, and (ii) an appreciation in the SDR–$ exchange rate, which increased the size of the approved loan in US dollars. Actual ADB expenditure was $8.5 million, compared with an estimate of $9.6 million at appraisal. Grant funding by the Australian Agency for International Development of $0.9 million was released in full. The government’s counterpart funding contribution was $3.0 million, compared with an estimate of $4.7 million at appraisal, and the difference reflects issues with timely appropriation and release of counterpart funds. The BPNG’s actual contribution of $0.6 million was higher than the estimate of $0.4 million at appraisal, which reflects the extended project implementation period. The IBBM’s actual contribution of $0.8 million was lower than the estimate of $1.2 million at appraisal but the shortfall is not considered to have negatively impacted project implementation. 17. The cost of component A, the capacity building of MFIs through the MCC, was $7.2 million, compared with an estimate of $5.9 million at appraisal. The increase was for additional capacity building incorporated into the project design following the midterm review. Component B, the development and testing of new products and delivery methods, including the microbanking pilot scheme, is estimated to have cost $3.9 million, compared with an estimate of $3.5 million at appraisal. The higher cost reflects the additional equity contribution to Wau Microbank agreed during the midterm review. The funds for component C, the revolving fund facility that was cancelled at the midterm review, were reallocated to other project components. The cost of the project implementation unit (PIU) was $2.5 million, compared with an estimate of $0.8 million at appraisal. The difference reflects the extended project implementation period. Interest during implementation amounted to $0.3 million.

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D. Disbursements

18. Annual disbursements are listed in Appendix 2. They changed considerably from the original estimates, as shown in Appendix 3. Loan effectiveness was delayed until September 2001, 11 months after loan approval. Due to the delayed release of ADB loan funds, the IBBM financed initial project operations until the first disbursement in March 2002. Disbursements were further delayed because assumptions at project design proved to be overly optimistic and project implementation was slower than anticipated. The revised design following the midterm review led to a substantial reallocation of loan funds. Disbursements subsequently improved, although SDR1.6 million was cancelled in 2009 and SDR0.1 million was cancelled in 2010. The final disbursement was in October 2010. An imprest account was in use until the end of 2008 to ensure the timely availability of funds. In 2009 and 2010, the imprest account was closed and some project expenses were paid directly out of government counterpart funds and reimbursed by ADB. E. Project Schedule

19. The loan was approved on 19 October 2000 and the loan agreement was signed on 26 February 2001. The loan was declared effective on 20 September 2001, following a delay in the submission of the legal opinion from the state solicitor. Recruitment of the consulting firm was delayed and consultants were not fielded until September 2002, 18 months later than originally anticipated. The original loan closing date of 31 December 2006 was extended to 31 December 2008 after the midterm review and ultimately extended to 30 June 2010. Implementation took 106 months in total, or 46 months longer than planned at appraisal. F. Implementation Arrangements

20. The BPNG was the executing agency and was responsible for the overall coordination and implementation of the project. It established a PIU to enhance project coordination and management. A microfinance steering committee, chaired by the BPNG and with broad stakeholder representation, oversaw project planning, organization, administration, implementation, and monitoring. Components A and B were to be implemented by the IBBM with support from project consultants and trainers. Component C was to be implemented by the BPNG, with the management of the RFF (later cancelled) to be contracted out to a private financial institution. In 2009, an approved minor change in implementation arrangements moved responsibility for project activities in 2009 and 2010 from the IBBM to the MCC, its subsidiary. The IBBM continued to be represented on the microfinance steering committee until the close of the project. 21. The implementation arrangements were satisfactory overall. Locating the PIU at the IBBM weakened the oversight role of the BPNG, however. The microfinance steering committee proved to be effective, although the representation by some government agencies on the committee was irregular. G. Conditions and Covenants

22. Appendix 4 shows the degree of compliance with loan covenants. Generally, compliance with covenants was satisfactory and most of the covenants of the loan and project agreements have been complied with. The state solicitor’s delay in submitting the legal opinion postponed loan effectiveness and project implementation. Partial compliance recorded for some covenants related to (i) delays in reporting by the PIU and some lack of oversight by the BPNG, (ii)

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concerns about the performance of PIU consultants from 2006, and (iii) delays in the appropriation and release of counterpart funds, resulting in a shortfall in government counterpart funding. Covenants concerned with the implementation and monitoring of the RFF are not applicable due to the cancellation of component C in June 2005. A key outstanding requirement under the covenants is the preparation of the 2010 audit report, which is expected to be completed by October 2011. H. Consultant Recruitment and Procurement

23. The appraisal estimated that the project would require 144 person-months of international consulting services and 240 person-months of domestic consultants. The recruitment of all consultants followed ADB’s Guidelines on the Use of Consultants (October 1998, as amended from time to time). An international consulting firm was recruited to provide the international consulting services. Although advance action for the selection of consulting services was approved by ADB, consultant recruitment did not start until after loan effectiveness, which was delayed by 11 months. Due to subsequent delays in recruiting the consulting firm, consultants were not fielded until September 2002, 18 months later than planned. After loan closing was extended from the end of 2006 to the end of 2008, the BPNG negotiated for but ultimately decided against a contract extension. Several consultants previously engaged through the consulting firm were subsequently engaged as individual consultants by ADB. Actual consulting input during project implementation totaled 255 person-months of international services, and 700 person-months of domestic services. The domestic consulting services included 360 person-months of input by staff of the microbanking pilot scheme in Wau and Lae, who were contracted through the project for 2003–2007. They were later contracted by NMB directly. The actual cost of consulting inputs through the ADB loan was $3.3 million for international consultants and $0.5 million for domestic consultants, compared with the $2.4 million and $0.7 million estimates, respectively, at appraisal. This reflects the increase in the person-months for international and domestic consulting services agreed with the executing agency and stakeholders during the midterm review and subsequent review missions. An overview of the procurement of consulting services and contracts awarded is in Appendix 5. 24. All procurement under the project was in accordance with ADB’s Guidelines for Procurement (February 1999, as amended from time to time). Supply contracts for vehicles, computer equipment, and other office equipment needed for the establishment and operation of the PIU were awarded using international shopping procedures. Supply contracts for training and related services, each below the equivalent of $100,000, used direct purchase procedures. I. Performance of Consultants, Contractors, and Suppliers

25. In general, the performance of the consultants and contractors engaged through the project was satisfactory. Stakeholders did raise concerns about the performance of the international consulting firm at the start of the project. Several consultants included in the firm’s proposal were replaced and some replacements were not considered satisfactory by the executing and implementing agencies. The firm’s team leader resigned in December 2002, less than 3 months after being fielded, and was replaced in that role by the firm’s institutional development specialist. In addition, while many of the firm’s consultants carried out their duties competently, the firm did not provide sufficient oversight. A dispute also arose between the firm and its consultants over remuneration, particularly for housing allowances. The firm’s contract was not renewed when the loan project was extended from the end of 2006 to the end of 2008.

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26. The PIU was established in 2001 with support from a project manager and a project assistant. The performance of the domestic consultants in the PIU was satisfactory between 2001 and June 2006, when the project manager passed away suddenly. Despite efforts by the microfinance steering committee, no suitable replacement was found. The project assistant was promoted to the vacant position, but the performance of the acting project manager between 2006 and 2010 was unsatisfactory. Reporting and submission of withdrawal applications were delayed and concerns arose about the accuracy of records. Due to uncertainty about whether the project would be extended beyond the end of 2008, the microfinance steering committee decided not to replace the acting project manager. J. Performance of the Borrower and the Executing Agency

27. The performance of the BPNG and IBBM was satisfactory. The BPNG, the country’s central bank, was selected as the executing agency because it was the institution best placed to fulfill that role for the project. The BPNG has become a strong advocate for microfinance development in PNG and played an important role in chairing the microfinance steering committee. The selection of a private organization such as the IBBM to implement the majority of the project’s components was innovative and the IBBM contributed greatly to the project’s success. Locating the PIU at the IBBM, however, weakened oversight by the BPNG (para. 21). This resulted in delays in reporting and the submission of withdrawal applications. K. Performance of the Asian Development Bank

28. ADB’s performance during implementation was satisfactory. An important intervention by ADB was the major project redesign during midterm review, which successfully adapted the project to the circumstances facing the microfinance industry at the time. Nonetheless, stakeholders noted that this intervention would have been more effective if it had come earlier in the project rather than in 2005, 1 year before the original closing date. Stakeholders indicated that it had already become apparent in 2002–2003, the first 2 years of implementation that the RFF would not be needed and that the project would have to be redesigned. Stakeholders also reported that the performance of ADB improved when staff members with expertise in the microfinance sector were actively involved in implementation. Responsibility for project administration was transferred twice, first from ADB headquarters to the PNG resident mission in 2006 and from the PNG resident mission to the Pacific Liaison and Coordination Office in 2009.

III. EVALUATION OF PERFORMANCE

A. Relevance

29. The project is rated relevant. The project was in consonance with the government and ADB priorities to improve access to financial services, particularly in rural areas and for the poorer strata of the population (para. 4). The goal and objectives of the project were highly relevant although the original project design relied on unrealistic assumptions about the state of development in the industry. The estimate that 40 MFIs would participate in project activities was overly optimistic. The design also assumed incorrectly that the microbanking pilot scheme would succeed rapidly and that the model would be replicated by new MFIs during the 4-year project period without specific support from the project. 30. While the project needed to be redesigned at the midterm review to reflect the actual conditions and requirements for support in the microfinance sector, this process proved effective.

9

The redesigned project has been effectively implemented and has been recognized by stakeholders as having played a key role in the establishment of a microfinance industry in PNG. B. Effectiveness in Achieving Outcome

31. The project has been highly effective in achieving its outcomes with respect to outreach, and partially effective in achieving its outcomes with respect to improving the sustainability of the microfinance industry. Overall, the project is rated effective in achieving its outcomes.

1. Outcome: Formal and semiformal microfinance institutions provide sustainable microfinance services to viable formal and informal enterprises of all sectors and savings services to the population at large

32. During project implementation, the outreach of both formal and semiformal MFIs increased rapidly. The emergence of two licensed microbanks, NMB and PNG Microfinance, provided for a large portion of this growth. Together they now have 23 branches throughout the country. NMB was established through the project’s microbanking pilot scheme. The International Finance Corporation is a founding shareholder of PNG Microfinance and has provided significant technical assistance to this institution. In addition, about 20 savings and loan societies, the National Development Bank, and a number of small community-based nongovernment organizations, provide or used to provide microfinance services, although many are inactive. 33. Targets exceeded. In September 2002, the cumulative outreach by MFIs was estimated at approximately 20,000 borrowers and 45,000 depositors. Following the midterm review, a target was set for MFIs to increase the number of borrowers by 30,000 to 50,000 and the number of depositors by 40,000 to 85,000 by the end of the project. As of December 2008, the actual MFI outreach was estimated at 145,000 borrowers and 312,000 depositors, an increase of 125,000 borrowers (417% of the targeted increase) and 267,000 depositors (668% of the targeted increase), respectively. These figures exclude many non-regulated MFIs for which data is difficult to collect and so likely underestimate growth of the overall microfinance sector. In 2009, the design and monitoring framework was reviewed and a new project target for outreach was set, with MFIs expected to increase their outreach to 370,000 depositors and 170,000 borrowers by June 2010. Actual data as of June 2010 indicate that cumulative MFI depositors had increased to 509,000 (138% of the target), while the number of borrowers had increased to 184,000 (108% of the target). 34. Sustainability of the microfinance industry. Despite strong growth in outreach, concerns remain about the sustainability of the MFIs and the performance indicators on sustainability were only partly achieved. At the end of 2008, eight MFIs that were reportedly close to breakeven point and improving results annually were considered sustainable (including NMB and a number of savings and loan societies and semiformal MFIs). Since then, however, the effects of the global financial crisis and rising domestic operating costs have led to renewed losses in the industry. The microfinance sector in PNG faces a much higher demand for savings products than loan products. While this is not unique in the Pacific, it results in a significant structural weakness. 35. Faced with low loan demand, MFIs have invested surplus funds from high savings deposits in government securities and treasury bills. In the early 2000s, the returns on 182-day treasury bills in PNG were about 10%–22% per annum but these annual returns dropped from mid-2004 on and have settled at 3%–4%. Meanwhile, the MFIs have faced growing operating

10

expenses, including rising costs of hiring qualified staff, as a result of the mineral boom and global conditions. These factors significantly hampered the efforts of MFIs to attain operational and financial self-sufficiency in 2009 and 2010, although they continue to make progress. Some of the biggest MFIs, including NMB and East New Britain Savings & Loan, are now close to reaching or have reached operational self-sufficiency. Although PNG Microfinance, one of the two licensed microbanks, has struggled with large losses in the past, they are declining and it may break even in 2011. Financial data on some of the smaller and informal MFIs are not currently available. C. Efficiency in Achieving Outcome and Outputs

36. Overall, the project is rated less efficient. The project was extended twice, part of the ADB loan was cancelled, and final project cost was lower than estimated at appraisal. In mid-2010, the project closed with cancelled funds of SDR1.7 million ($2.4 million), although the US dollar value of the loan rose substantially during the implementation period due to exchange rate movements. The project did not suffer significant delays in funds transfers. The project activities were not capital intensive in nature. The main expenditures reflected the focus on capacity building for MFIs and, other than the equity contribution for the pilot microbanking scheme, were for consulting and training expenses. Submission of withdrawal applications and claim forms were delayed from 2006. While the project was eventually effective in achieving its outcomes and outputs and has had a significant impact on the development of the microfinance sector in PNG, more might have been achieved in a shorter time if the midterm review had been carried out earlier in the project’s life. The extended implementation period made the PIU costs significantly higher than estimated at appraisal. Unsatisfactory record keeping and data collection also reduced the efficiency of the project. D. Preliminary Assessment of Sustainability

37. The sustainability of the project is rated likely. The project has developed significant expertise within multiple institutions in the delivery of microfinance services. The microfinance training resources in material and expertise developed through the IBBM and the MCC are also expected to be sustainable. Since project completion, the IBBM has offered the training services on a commercial basis. The MCC will be succeeded by the National Centre for Financial Inclusion under ADB’s new Microfinance Expansion Project to broaden the scope of activities and facilitate sustainability (footnote 3). 38. The project subsidized the delivery of MCC training courses to MFIs during implementation. The contributions made by MFIs for their training were accumulated in a capacity development fund established by the MCC in 2003. The MFIs’ contribution was to increase gradually as the number of MFI person-training-days grew. The fund had accumulated approximately K0.8 million by the end of the project, which can be used to continue to subsidize the training provided to MFIs that cannot bear the full training costs and thus guarantee a certain volume of training will be carried out by the IBBM. 39. The microbank established under the project pilot scheme has been sustainable since the end of 2006. Wau Microbank changed its name to NMB in June 2008, was granted a new license from the BPNG, and now operates on a commercial basis. NMB embarked on a large expansion plan and, despite deficits generated in new branches, managed to be profitable each year during 2006–2009 before making a loss in 2010. It has 14 branches across the country, more than 100,000 active clients, and is one of the leaders in the industry. During the project, the emergence of another large microfinance institution, PNG Microfinance, with support from

11

the International Finance Corporation added extra depth to the sustainability of the microfinance sector. A credit information bureau established in 2008 with support from the MCC is now profitable and considered sustainable. E. Impact

40. The overall objective of the project was to contribute to economic growth through private sector development, employment creation, and deepening of the financial system. The goal of the project was to reduce poverty and integrate the majority of the poor into the mainstream development process. The deepening of the financial system is easily evidenced by (i) the emergence during the project implementation period of two licensed microbanks with a growing branch network; (ii) multiple strengthened savings and loan societies, which are also slowly expanding their branch networks and customer bases; and (iii) the expansion of the National Development Bank into microfinance products. Since project inception, a regulated microfinance industry has emerged that is increasing its outreach and capacity to serve the population at large. Nominal domestic credit to the private sector, the performance indicator included in the design and monitoring framework, has increased from K1.8 billion at the end of 2001 to K6.5 billion in June 2010, a compounded average annual growth rate of approximately 18%. The ratio of private sector credit to gross domestic product has increased from less than 15% in 2005 to 27% in 2010. 41. The project has had a significant impact on the strong growth recorded in the microfinance industry in PNG. It has changed the perception and thinking of all stakeholders, practitioners, and the regulators. At the start of the project, the microfinance industry was nascent and most microfinance initiatives had failed. The project has laid a solid foundation for the future growth of the industry and has developed microfinance as a suitable tool for rural development in the country. It has facilitated the integration of people into the financial sector who had never had access to appropriate financial services. The microfinance institutions and savings and loan societies had extended their outreach to more than 500,000 clients by end of June 2010. 42. The social impact of the project, with respect to poverty alleviation and increased employment, cannot be reliably assessed. No social impact indicators were incorporated into the project framework at project design and, as a result, no data have been recorded. The Government of PNG does not regularly collect or report on poverty and employment statistics. The last official estimates of the percentage of households living below the poverty line are based on data from 1996. No data on formal and informal employment in the country is available.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

43. The project is rated successful. The project was completed with nearly all outcome and output indicators or targets met or surpassed. A structured and sustainable microfinance industry has emerged where none previously existed. The project has achieved more than anticipated and has managed its limitations, delays, and obstacles effectively. Flaws in the initial design and some delays in implementation were ultimately resolved through flexibility in project administration that resulted in a major redesign of the project after the midterm review. To build on the achievements of the project, ADB will provide continued support to the microfinance industry through the Microfinance Expansion Project (footnote 3).

12

B. Lessons

44. The following lessons can be drawn:

(i) Realistic design key in conditions of uncertainty. When a project seeks to develop a nascent industry in a challenging environment, outputs need to be realistic. The project design relied on assumptions about the state of and potential for development in the microfinance industry that proved to be unrealistic. The project redesign highlights the need to be flexible in adapting the project to emerging realities and experiences in the industry.

(ii) Efficient reporting and data collection essential. The PIU did not allocate

sufficient time to reporting and data collection during implementation, which impacted negatively on the ability of ADB and the microfinance steering committee to administer the project effectively. Not housing the PIU within the executing agency reduced oversight and transparency.

(iii) Timely reviews, earlier solutions, lower costs. A major project redesign

followed a midterm review. While the changes contributed significantly to the success of the project, this review occurred came fairly late—in 2005, compared with the original closing date of 2006. Had this review taken place earlier, the project might have been able to achieve its outcomes earlier and at lower cost.

(iv) Match ADB staff skills to specific project needs. When supporting the

development of a new industry in a challenging environment, project administration needs to be particularly vigilant and carried out by ADB officers with strong expertise in the area. Stakeholders noted that the performance of ADB improved when staff had expertise in the microfinance sector and were actively involved in the implementation of the project.

C. Recommendations

1. Project Related

45. Future monitoring. Monitoring of the microfinance sector in PNG should take place as part of ADB’s Microfinance Expansion Project (footnote 3). This project is currently under implementation and will extend and build on the experiences and lessons learned from the Microfinance and Employment Project. To support the further development of the microfinance sector, it will (i) strengthen the capacity of the microfinance industry to provide financial services to a broader cross-section of the community and strengthen the capacity of its clients and potential clients to utilize these services; (ii) provide appropriate regulation for, and supervision of, MFIs and savings and loan societies through the BPNG; and (iii) increase lending to micro and small enterprises. 46. Covenants. The key outstanding item under the project covenants is the preparation of the final audit report. The report is expected to be completed by October 2011. Compliance with several covenants has been partial (para. 22). It is recommended that all remaining project covenants be waived, as these have been superseded by the covenants of the Microfinance Expansion Project.

13

47. Further action or follow-up. All administrative actions to complete the project have been achieved, with the exception of the preparation of the final audit report. Follow-up activities should take place in the context of the Microfinance Expansion Project. 48. Additional assistance. This project has established a growing microfinance industry but further support is required to help the industry confront such outstanding issues as (i) a continued lack of access to financial services, particularly for people in rural areas; (ii) poor financial literacy and business management skills; (iii) capacity constraints among microfinance and socioeconomic institutions; (iv) an increasing demand for borrowing by micro and small enterprises; (v) a lack of a microfinance-specific legal and regulatory framework; and (vi) the absence of accepted industry-wide standards. These issues will be addressed through the Microfinance Expansion Project. In addition, technical assistance for the introduction of mobile phone banking by NMB will be provided under the Pacific Private Sector Development Initiative.5 49. Timing of the project performance evaluation report. If a project performance evaluation report is to be undertaken, it should be prepared in 2014. This will give time for the sector to mature further and allow for a more accurate assessment of the sustainability of the project, particularly given the follow-up activities planned under the Microfinance Expansion Project.

2. General

50. Advanced consultant contracting and timely review. The implementation schedule for the project did not take into account the long lead times required for the declaration of loan effectiveness, consultant recruitment, detailed design, and contract approval. Although advance contracting was approved by ADB, consultant recruitment did not commence until after loan effectiveness, which itself came only 11 months after loan approval. Subsequent delays in the recruitment of the consulting firm meant that consultants were fielded 18 months later than planned. Advance contracting should be used wherever feasible to ensure that project implementation can start promptly after loan effectiveness. In addition, timely reviews should be carried out, particularly where projects support the development of nascent industry, to adapt the project to emerging trends and experiences in the industry. 51. Importance of indicators. The impact of the project could have been more reliably measured if more detailed indicators had been identified at project inception, including social impact indicators, taking into account the limited availability of data in developing member countries such as PNG.

5 ADB. 2006. Technical Assistance for the Private Sector Development Initiative. Manila; ADB. 2009. Technical

Assistance for the Pacific Private Sector Development Initiative, Phase II. Manila. Cofinanced by the Australian Agency for International Development.

14 Appendix 1

DESIGN AND MONITORING FRAMEWORK

(as updated in 2005 and 2009 from original project framework, September 2000)

Design Summary

Performance Indicators/Targets Actual Achievements

Impact Private sector-led economic growth and employment creation is enhanced and the overall financial system is deepened

Domestic credit to the private sector increases by 10% per annum over the project period.

Nominal domestic credit to the private sector has increased from K1.8 billion at the end of 2001 to K6.5 billion in June 2010. The ratio of private sector credit to gross domestic product has increased from less than 15% in 2005 to 27% in 2010.

Outcome Formal and semiformal microfinance institutions provide sustainable microfinance services to viable formal and informal enterprises of all sectors and savings services to the population at large.

Outreach 1. By the end of 2008, MFIs have

increased their outreach by at least 30,000 borrowers and 40,000 depositors.

2. From 2008 to the end of the project, MFIs have increased their outreach to 370,000 depositors and 170,000 borrowers.

1. As of December 2008, the

MFIs outreach was estimated at 145,000 borrowers and 312,000 depositors. Compared with the beginning of the project, MFIs had increased their outreach by 125,347 borrowers (417% of the targeted increase) and 266,960 borrowers (668% of the targeted increase). These figures exclude many non-regulated MFIs for which data is difficult to collect and are likely to underestimate MFI sector growth.

2. By June 2010, MFI depositors had increased to 509,000, or 138% of the target, and borrowers had increased to 184,000 or 108% of the target.

Sustainability 1. At least 3 of the 5 largest

participating MFIs, with regard to portfolio outstanding, reach operational self-sufficiency within 2 years after participating in the Project, and two reach financial self-sufficiency within 4 years.

2. At least 7 MFIs of the promising group show annual improvement of the OSS

1. Partly achieved. Eight MFIs

were reportedly close to breakeven point in 2008 and improving annually. By the end 2008, these MFIs were considered sustainable. Since then, the effects of the global financial crisis and rising domestic operating costs have led to losses.

2. See above.

Appendix 1 15

Design Summary


indicator and reach 100% after five years of participation to MCC activities.

3. By the end of the project, the

PAR < 10% for non SLS regulated MFIs.

3. Partially achieved. The PAR is

<10% for PNG Microfinance but had blown out to 18% for Nationwide Microbank, as of early 2011, albeit on an improving trend.

Output 1: a) MCC established as a profit

centre.

1. The MCC is established and

operational six months after project start.

2. Draft Business plan for the MCC outlining path to financial sustainability is drawn up within 2 years of project implementation, is reviewed by December 2005 and then yearly by MCC.

1. Achieved. The MCC was

established within the first 6 months of operations of the project.

2. Achieved. A third business plan was written in Q4 2008, which shows that the MCC is unlikely to be sustainable in the short to medium term. It would need to expand its breadth and services and would likely require ongoing donor funding. A successor to the MCC, the National Centre for Financial Inclusion, will be established under ADB’s new Microfinance Expansion Project.

b) Capacity of MFIs strengthened

3. The MCC conducts on average 1,500 person-training-days per year.

4. The MCC provides 12 person months of TA per year to MFIs from the promising group

5. At least 7 MFIs of the

promising group have adequate MIS satisfying MCC monitoring requirements.

6. By end 2006, MCC conducts at

least 5 full institutional assessments of MFIs from the

3. Achieved. From 2003 to the end 2008, more than 9,200 person-days of training were delivered, an average of 1,533 person-days per year.

4. Achieved. More than 15

person-months of TA per year had been provided up to the end of 2008. Given this achievement, this output was discontinued from the end of 2008.

5. Achieved. Eleven MFIs have

an adequate MIS in place. MIS upgrades are planned under the new Microfinance Expansion Project.

6. Surpassed. Eight full

assessments were conducted between late 2004 and the end

16 Appendix 1

Design Summary


promising group currently identified.

7. By the end of 2006, a draft

microfinance regulatory framework is finalized.

8. By end 2006, MCC has

established an annual review process of MFIs according to the microfinance regulatory framework and BPNG guidelines

of 2008.

7. Partly achieved. The project submitted a draft legal microfinance framework to the BPNG, which was not implemented. Institutions are currently regulated under the Banks and Financial Institutions Act and Savings and Loan Societies Act. The absence of a microfinance-specific legal framework is not considered to have been an obstacle to the development of the sector. In 2008, the BPNG created a microfinance unit within the Banking Supervision Department.

8. Partially achieved. The project developed for the BPNG a risk-based supervision approach for microbanks and SLSs for supervising the regulated part of the microfinance market. This indicator was discontinued from the end of 2008.

Output 2: a) New savings and loan products

and delivery methods are developed, tested, and implemented.

1. At least one new product each

for savings, loans, and other financial services is introduced each year up to the end of 2008.

2. At least 3 downscaling pilot MFI services are operational during project implementation up to the end of 2008.

3. From 2009 to the end of the project period, pilot-tests in financial education and linkages between first tier (formal, regulated) MFIs and second tier (semi-formal) MFIs have been carried out in at least 2 locations.

4. From 2009 to the end of the project period, basic financial literacy training and the

1. Surpassed. Approximately 37

new products were tested and offered by MFIs between 2002 and 2008.

2. Achieved. Three downscaling projects were launched in 2003 and completed by 2005.

3. Surpassed. Pilot tests were carried out in four locations (East Sepik Province, Madang Province, Chimbu Province, and Bougainville).

4. Surpassed. Financial literacy

training was provided to over 7,000 people in the pilot test

Appendix 1 17

Design Summary


opportunity to access microfinance services have been provided to at least 6,000 people.

locations.

b) Establish, operate, and document pilot micro-banking.

5. Pilot micro-banking is legally established and management structure is in place within 6 months of project start.

6. Appropriate governance structure implemented by end 2005.

7. Partial divestment to private sector to be undertaken by end 2005 with the objective of generating positive return at end of the project.

8. Business plan for pilot micro-banking is formulated within 12 months of project start and is revised regularly.

9. Operational self-sufficiency is

reached by end 2007 and financial self-sufficiency is reached in 2008.

5. Achieved. Beginning in 2006, the scheme has operated on a commercial basis. It was incorporated in March 2007 as Wau Microbank.

6. Achieved in 2007 when Wau Microbank was incorporated and an independent board was appointed.

7. Partly achieved. Partial privatization through an equity investment by a landowner company in 2008. Discussions with other potential investors ongoing.

8. Achieved.

9. Achieved.

< = smaller than, ADB = Asian Development Bank, BPNG = Bank of Papua New Guinea, MCC = Microfinance Competence Centre, MFI = microfinance institution, MIS = management information system, NMB = Nationwide Microbank, OSS = operational self-sufficiency, PAR = portfolio at risk, PNG = Papua New Guinea, Q = quarter, SLS = savings and loan society, TA = technical assistance. Note: Adapted from original project framework in the Report and Recommendation of the President. Sources: Asian Development Bank, Bank of Papua New Guinea, microfinance institutions.

18

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ANNUAL DISBURSEMENTS BY CATEGORY

($)

Category 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

01 12,383.40 114,965.61 21,318.42 16,283.60 0.00 0.00 0.00 162,40

2.08 6,505.05 333,858.16

02A 400,000.00 433,955.25 544,474.54 408,171.88 354,178.17 351,313.00 490,191.00 143,213.16 191,896.35 3,317,393.35

02B 0.00 45,961.61 45,239.04 133,817.23 21,933.30 39,741.84 76,066.11 46,072.99 63,395.59 472,227.71

03A 0.00 0.00 0.00 41,310.29 35,520.00 0.00 5,970.58 14,505.79 12,085.45 109,392.11

03B 0.00 7,420.48 58,162.11 117,127.79 51,750.10 80,259.80 120,891.22 10,275.83 94,695.91 540,583.24

03C 0.00 0.00 0.00 3,602.85 1,426.53 3,357.15 17,825.14 16,614.95 0.00 42,826.62

04 0.00 40,522.85 147,319.76 102,386.83 16,297.88 28,738.18 84,598.23 319,250.22 12,600.08 751,714.03

05A 0.00 12,165.90 17,007.20 76,957.86 6,273.94 13,809.62 24,627.69 39,757.03 220,768.37 411,367.61

05B 0.00 22,069.38 32,484.89 87,583.32 7,288.59 12,333.76 45,143.93 68,244.75 474,265.92 749,414.54

06 0.00 0.00 0.00 0.00 0.00 0.00 0.00 47,200.50 0.00 47,200.50

08 0.00 125,000.00 0.00 0.00 0.00 1,300,000.00 0.00 0.00 0.00 1,425,000.00

09 1,923.76 9,111.23 17,763.19 23,743.77 38,484.46 45,077.82 63,251.16 81,434.71 0.00 280,790.10

Total 414,307.16 811,172.31 883,769.15 1,010,985.42 533,152.97 1,874,631.17 928,565.06 948,972.01 1,076,212.72 8,481,767.97

01 = vehicles and equipment; 02A = consulting services—international consultants; 02B = consulting services—domestic consultants; 03A = training—trainer upgrading; 03B

= training—in-house-training; 03C = training—on-the-job training; 04 = networking & public awareness; 05A = project operation—office supplies & communication; 05B =

Project operation—travel, steering & reporting; 06 = review and audit; 07 = finance fund; 08 = pilot microbanking equity; 09 =interest charge. Source: Asian Development Bank.

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19

ANNUAL DISBURSEMENTS—PROJECTED VS ANNUAL

($'000)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Appraisal

2,444.29 2,228.11 2,117.60 1,631.14 1,173.85 0 0 0 0 0 9,595.00

Actual 0 414.31 811.17 883.77 1,010.99 533.15 1,874.63 928.57 948.97 1,076.21

8,481.77

20 Appendix 4

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference Status of Compliance

The Borrower shall cause the BPNG and, to the extent applicable, IBBM to carry out the Project with due diligence and efficiency and in conformity with sound administrative, financial engineering, environmental and microfinance practices.

LA Section 4.01 (a) PA Section 2.01 (a)

Largely complied with. Reporting by the project implementation unit subject to delays and some lack of oversight by the BPNG.

In the carrying out of the Project and operation of the Project facilities, the Borrower/Project Executing Agencies shall perform, or cause to be performed, all their respective obligations set forth in Schedule 6 of the Loan Agreement and in the Schedule to the Project Agreement, in each case to the extent such obligators are applicable to such Project Executing Agency.

LA Section 4.01 (b) PA Section 2.01 (b)

Largely complied with. See references to Schedule 6 below.

The Borrower shall make available to BPNG, and the Project Executing Agencies shall make available, promptly as needed and on terms and conditions acceptable to the Bank, the funds, facilities, services and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project.

LA Section 4.02 PA Section 2.02

Partly complied with. Delays in the appropriation and release of counterpart funds. Shortfall in government counterpart funding

The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA Section 4.03 Complied with

The Borrower shall furnish, or cause to be furnished, to the Bank all such reports and information as the Bank shall reasonably request concerning (i) the Loan, and the expenditure of the proceeds and maintenance of the services thereof; (ii) the goods and services and other items of expenditure financed out of the proceeds of the Loan ;( iii) the Project; (iv) the administration, operations and financial condition of BPNG and any other agencies of the Borrower responsible for the carrying out of the Project and operation of the Project facilities, or any part thereof; (v) financial and economic conditions in the territory of the Borrower and the international balance-of-payments position of the Borrower; and (vi) any other matters relating to the purposes of the Loan.


The Borrower shall enable the Bank's representatives to inspect the Project facilities, the goods financed out of proceeds of the Loan, and any relevant records and documents.


The Borrower shall take all action which shall be necessary on its part to enable BPNG and IBBM to perform their respective obligations under the Project Agreement, and shall not take or permit any action

which would interfere with the performance of such obligations.


It is the mutual intention of the Borrower and the Bank that no other external debt owed a creditor other than the Bank shall have any priority over the Loan by way of a lien on the assets of the Borrower. To that end, the Borrower under takes (i) that, except as the Bank may otherwise agree, if any lien shall be created on any assets of the Borrower as security for any external debt, such lien will ipso facto equally and ratably secure the payment of the principal of, and service

LA Section 4.07 (a) Complied with

Appendix 4 21

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21


charge and any other charge on, the Loan; and (ii) that the Borrower, in creating or permitting the creation of any such lien, will make express provision to that effect.

The provisions of paragraph (a) of Section 4.07 of the Loan Agreement shall not apply to (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; or (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date.

LA Section 4.07 (b) Complied with

The term "assets of the Borrower" as used in paragraph (a) of Section 4.07 of the Loan Agreement includes assets any political subdivision or any agency of the Borrower and assets of any agency of any such political subdivision, including BPNG and any other institution performing the functions of a central bank for the Borrower.

LA Section 4.07 (c) Complied with

In the carrying out of the Project, BPNG shall employ competent and qualified consultants, acceptable to the Bank, to an extent and upon terms and conditions satisfactory to the Bank.

PA Section 2.03 (a) Complied with. Some concerns about the performance of project implementation unit consultants from 2006

Except as the Bank may otherwise agree all goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with provisions of Schedule 4 and Schedule 5 to the Loan Agreement. The Bank may refuse to finance a contract where goods or services have not been procured under procedures substantially in accordance with those agreed between the Borrower and the Bank or where the terms and conditions of the contract are not satisfactory to the Bank.

PA Section 2.03 (b) Complied with

The Project Executing Agencies shall carry out the Project in accordance with plans, specifications, and work schedules acceptable to the Bank. The Project Executing Agencies shall furnish to the Bank, promptly after their preparation, such plans, specifications and work schedules, and any material modifications subsequently made therein, in such detail as the Bank shall reasonably request.

PA Section 2.04 Complied with

BPNG and IBBM shall each take out and maintain with responsible insurers, or make other arrangements satisfactory to the Bank, for insurance of the Project facilities for their respective parts of the Project to such extent and against such risks and in such amounts as shall be consistent with sound practice.

PA Section 2.05 (a) Complied with

Without limiting the generality of the foregoing, BPNG and IBBM each undertakes to insure, or cause to be insured, the goods to be imported for their respective parts of the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely useable to replace or repair such goods.

Pa Section 2.05 (b) Not applicable. No imported goods

BPNG and IBBM shall maintain records and accounts for their respective parts of the Project adequate to identify the goods and services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and

PA Section 2.06 Complied with by the IBBM. Partly complied with by the BPNG. Some concerns about delays in reporting by the project implementation unit and need for greater oversight by

22 Appendix 4


to reflect, in accordance with consistently maintained sound accounting principles, their respective operations and financial condition and such records and accounts shall be consolidated by BPNG through the PIU to reflect the overall Project records and accounts.

the BPNG

Each Project Executing Agency shall cooperate fully with the Bank to ensure that the purposes of the Loan will be accomplished.


Each Project Executing Agency shall promptly inform the Bank of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement or the accomplishment of the purposes the Loan.


The Bank and each Project Executing Agency shall, from time to time, upon request, exchange views through their representatives with regard to any matters relating to the Project, each Project Executing Agency and the Loan.

PA Section 2.07 (c) Complied with

Each Project Executing Agency shall furnish to the Bank all such reports and information as the Bank shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the goods and services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) its respective administration, operations and financial condition; and (v) any other matters relating to the purposes of the Loan.

PA Section 2.08 (a) Complied with by the BPNG and IBBM. Delays in submission of accounts and reports by the project implementation unit

Without limiting the generality of the foregoing, with respect to that part of the Project for which it is responsible, BPNG and IBBM shall respectively furnish to the PIU for consolidation quarterly and annual reports on the execution of the Project and on the operation and management of the applicable Project facilities. Such reports shall be consolidated by the PIU and submitted to the Bank in such form and in such detail and within such a period as the Bank shall reasonably request, and shall indicate, amongst other things, progress made and problems encountered during the period under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following period.

PA Section 2.08 (b) Complied with by the BPNG and IBBM. Delays experienced in consolidation of accounts and reports by the project implementation unit.

Promptly after physical completion of the Project, but in any event not later than three (3) months thereafter or such later date as the Bank may agree for their purpose, each Project Executing Agency shall prepare and furnish to the PIU its report, in such form and in such detail as the bank shall reasonably request, on the execution and initial operation of the respective parts of the Project for which it is responsible, including the relevant costs, the performance by each Project Executing Agency of its obligations under the Project Agreement and the accomplishment of the purposes of the Loan. Such reports shall be consolidated by the PIU and submitted to the Bank.

PA Section 2.08 (c) Complied with. Project completion reports prepared for activities up to end of 2006, up to end of 2008, and for extension period activities in 2009 and 2010

BPNG and IBBM shall each (i) maintain separate accounts for implementation of its respective parts of the Project and for its overall operations; (ii) have such accounts, including Imprest account and related

PA Section 2.09 (a) Complied with by the BPNG and IBBM for overall operations. Preparation of accounts by the project

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financial statements (balance sheet, statement of income and expenses, statement of expenditures and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to the Bank, and (iii) furnish to the Bank, promptly after their preparation but in any event not later than six months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement and, as applicable, on the use of the imprest account procedures), all in the English language. BPNG and IBBM shall each furnish to the Bank such further information concerning such accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request.

implementation unit subject to delays. Audit of 2010 financial statements in progress

Each Project Executing Agency shall enable the Bank, upon the Bank's request, to discuss its financial statements and its financial affairs from time to time with its auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by the Bank, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Project Executing Agency concerned unless it shall otherwise agree.

PA Section 2.09 (b) Complied with. Not requested by ADB

BPNG and IBBM shall each enable the Bank's representatives to review the respective parts of the Project for which it is responsible, the goods financed out of the proceeds of the Loan, its other facilities and equipment and any relevant records and documents.


BPNG and IBBM shall each promptly, as required, take all action within its powers to maintain its corporate or statutory existence, as the case may be, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business.


BPNG and IBBM shall each conduct their respective businesses at all times in accordance with sound administrative, financial, environmental, and microfinance practices, as applicable, and under the supervision of competent and experienced management and personnel.


BPNG and IBBM shall at all times operate and maintain their premises, facilities, equipment and other property, from time to time, promptly as needed, and make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, environmental, microfinance and maintenance and operational practices.

PA Section 2.11 (c) Complied with

Except as the Bank may otherwise agree, neither BPNG nor IBBM shall sell, lease or otherwise dispose of any of their respective assets if such action may prejudice their ability to perform satisfactorily any of the respective obligations under the Loan Agreement or the Project Agreement.


24 Appendix 4


Except as the Bank may otherwise agree, neither BPNG nor IBBM shall make any material organizational changes, either financial, operational or structural, if such changes may affect their ability to perform their respective obligations under the Loan Agreement or this Project Agreement.


Except as the Bank may otherwise agree, each Project Executing Agency shall apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with provisions of the Loan Agreement and this Project Agreement and shall ensure that all goods and services financed out of such proceeds are used exclusively in the carrying out of the Project.


BPNG and IBBM shall each promptly notify the Bank of any proposal to amend, suspend or repeal any provision of their respective business licenses or charters which may have any material impact on the Project, and afford the Bank and adequate opportunity to comment on such proposal prior to taking any action thereon


Microfinance Steering Committee (MSC): BPNG shall be responsible for the overall coordination and carrying out of the Project and for the day-to-day implementation of Part C of the Project; IBBM shall be responsible for the day-to-day implementation of Parts A and B of the Project. The Borrower shall ensure that the MSC shall continue, during the period of Project implementation, to be chaired by the Governor, BPNG and include as members one senior representative each from the Borrower's Department of Finance and Treasury, Department of National Planning and Monitoring, IBBM, non-financial service providers (nominated by the Department of Trade and Industry), and the private sector/MFI clients and two members representing MFIs. The MSC shall provide overall policy guidance and coordinate activities between national, provincial and local level government agencies, MFIs, non-financial service providers and private sector stakeholder groups; and (ii) oversee Project planning, organization, administration, implementation and monitoring. The MSC shall meet at least once every three months.

LA Schedule 6 – Para 1

Complied with. The Microfinance Steering Committee was operational and met regularly during the implementation of the project. BPNG chair delegated to deputy governor, policy & regulation

Project Implementation Unit (PIU): Within one month of the Effective Date, the Borrower shall cause BPNG to establish a PIU, with staff and resources satisfactory to the Bank, located at the premises of IBBM. Under the guidance of the MSC, the PIU shall handle day-to-day Project administration and management matters. The PIU shall be headed by a full-time Project Manager, with support from a full-time Project Assistant, with qualifications and experience acceptable to the Bank.


Complied with until 30 June 2006, when the project manager passed away. From 1 July 2006, the project assistant became acting project manager. Some concerns about performance of acting project manager

BPNG Support for Part C of the Project: The Borrower shall ensure that, for purposes of Part C of the Project, BPNG shall provide, inter alia, office premises, facilities, transport, counterpart staff and computer equipment and supplies, satisfactory to the Bank, to support the activities of the RFF consultant engaged under the Project.


Not applicable. Following the midterm review of June 2005, the RFF component was cancelled due to high liquidity in the financial system.

Establishment and Operation of the RFF: The Borrower shall cause BPNG to ensure that within 8 months of the Effective Date, it shall establish the RFF, in accordance

LA Schedule 6 – Para 4 (a)

Not applicable. Following the midterm review of June 2005, the RFF component was

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with procedures satisfactory to the Bank, and select and engage the Management Agent, in accordance with an agreement satisfactory to the Bank and competitive selection procedures acceptable to the Bank. The agreement between the BPNG and the Management Agent will include, inter alia, provision for (i) the establishment of a special RFF account at a commercial bank acceptable to BPNG and the Bank for deposit and withdrawals of proceeds from the RFF, in accordance with procedures and conditions as specified in such agreement; (ii) that BPNG shall engage an independent auditing firm, acceptable to the Bank, to carry out annual audits of the RFF; and (iii) that BPNG and the Bank, at the option of either party, are authorized to undertake special audits of such special RFF account referred to under (i) at any time

cancelled.

Upon the recommendation of the Management Agent, the MSC shall establish, upon advice from BPNG, the applicable interest rate, including margin, chargeable under the RFF for credit lines extended to MFIs and that any modifications thereto shall only be made by the Management Agents upon the prior approval of the MSC. The applicable interest rate chargeable under RFF shall be (a) for credit lines extended in Kina to MFIs, the most recent Kina Auction Rate, plus a reasonable margin to cover costs; and for credit lines extended in foreign currency to MFIs, the applicable 3-month LIBOR, plus a reasonable margin to cover costs, provided the MFI concerned has sufficient capacity to assume the foreign exchange risk, as determined by the Management Agent.

LA Schedule 6 – Para 4 (b)

Not applicable. Following the midterm review of June 2005, the RFF component was cancelled.

The Borrower shall cause BPNG to ensure that funding is provided through the RFF to MFIs to achieve sustainability and expand their loan portfolios by way of (a) provision of credit lines to MFIs for on lending through Sub-loans to Sub-borrowers; and (b) loans to MFIs, at market-based interest rates, for purchase of equipment provided such loans do not exceed, in the aggregate, 5 percent of value of the RFF disbursed under Part C of the Project.



Relending through RFF to MFIs: The Borrower shall cause BPNG to ensure that: (a) relending of Loan proceeds through the RFF to each MFI shall occur on condition that (1) the relevant loan amount does not exceed 40 per cent of the value of the RFF at disbursement of such loan to the MFI concerned; and (2) such MFI satisfies specified eligibility and performance criteria including, inter alia, the following: (i) registration with the MCC; (ii) obtaining an adequate rating by MCC (issued not later than 6 months prior to the application of the MFI concerned for a credit line under the RFF) and continuing adherence to such rating; (iii) maintaining an average repayment rate of not less than 85 percent; (iv) adoption of a detailed plan for operational and financial self-sufficiency, with acceptable ongoing performance targets and improvement strategy; (v) operation of a satisfactory management information and accounting system; and (vi) the average maximum loan amount for the Microfinance portfolio of the MFI concerned does not exceed K5000.

LA Schedule 6 – Para 6 (a)


26 Appendix 4


The terms and conditions of each MFI credit line agreement between the RFF, through the Management Agent, and the MFI shall include inter alia: (i) provision that the MFI concerned shall use the proceeds of such credit line facility, including any repayments to such MFI of Sub-loans extended to Sub-borrowers from such credit line facility, exclusively for finance of loans to micro-enterprises or entrepreneurs; (ii) a term not greater than 5 years; (iii) a loan denominated in Kina unless the MFI concerned has adequate arrangements for foreign exchange hedging arrangements, satisfactory to the Management Agent; (iv) an applicable interest rate charged as established by the MSC in accordance with the terms of paragraph 4(b) of this Schedule and payable on a monthly basis; (v) provision for charging of (i) penalty fees for payments of overdue interest of 3 per cent per annum over the applicable interest rate, and (ii) commitment fees of 0.25 per cent per month on approved but undisturbed MFI credit line balances; (vi) disbursement in specified tranches, upon execution of all required legal documentation, in accordance with an agreed schedule based on MFI portfolio and cash flow projections, provided that withdrawals by an MFI of RFF proceeds subsequent to the initial disbursement may occur only on condition that such MFI has (i) disbursed not less than 70 percent of the prior tranche to Sub-borrowers; (ii) the average repayment rate over the previous 6 month period for the relevant MFI is not less than 90 percent; and (iii) the MFI concerned is in compliance with all RFF reporting requirements, including provision of monthly reports, in form and substance satisfactory to the Management Agent; (iv) an undertaking by the MFI concerned to notify the Management Agent of any material changes that may adversely affect the operations of such MFI; (viii) an undertaking by the MFI to ensure on lending to Sub-borrowers on specified terms and conditions including inter alia, those detailed in paragraph 7 of this Schedule; and (ix) provision for annual audits of MFI accounts and records by the Management Agent, at the latter's option.

LA Schedule 6 – Para 6 (b)

Not applicable. Following the midterm review of June 2005, the RFF component was cancelled. due to high liquidity in the financial system.

On lending by MFIs to Sub-borrowers: The Borrower shall cause BPNG to ensure that each MFI shall on lend the proceeds of its credit line loan from the RFF under Sub-loans to Sub-borrowers in Kina on terms and conditions including, inter alia, that: (a) the relevant Sub-loan proceeds shall only be used for business purposes (i.e. no consumer loans); (b) the term of Sub-loans for working capital and for fixed assets/equipment/livestock will not exceed 12 and 36 months respectively; (c) the applicable interest rate shall be the most recent Kina Auction Rate, plus a margin set by the MFI concerned based on market rates and to ensure financial viability.



Microfinance Policy Framework: The Borrower shall ensure that a Microfinance Policy Statement shall have been officially adopted and made public, in form and substance satisfactory to the Bank, no later than 6 months from the Effective Date. Pursuant thereto, the Borrower shall, within 12 months of the Effective Date, prepare and submit to the Bank for review and


Partly complied with. Microfinance Policy Statement approved by the National Executive Council. Draft regulatory framework prepared but not implemented by the BPNG. Regulation of the

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comment draft legislation and /or implementing regulations, as necessary, creating an appropriate regulatory framework for microfinance operations. Taking into consideration the comments of the Bank on such draft legislation or regulations, as applicable, the Borrower shall, within 24 months of the Effective Date, enact such legislation by way of promulgation of new, or amendment of existing, laws or implementing regulations.

microfinance sector through the existing Banks and Financial Institutions Act and Savings and Loan Societies Act.

PME Review: The Borrower shall ensure that the implementation of the Project, and the benefits resulting there from, are monitored and evaluation on an annual basis. The Borrower shall cause BPNG to: (a) within 6 months of the Effective Date, establish a PME system based on specified performance indicators to be agreed with the Bank; and (b) within 12 months of the Effective Date, refine such PME system in a manner satisfactory to the Bank.


Complied with

Special Reviews: The Borrower shall undertake special reviews, jointly with the Bank, to assess the status and achievements of the Project in relation to its objectives, focusing on key Project performance indicators, and to identify needed remedial measures, (i) prior to any disbursements to the RFF under Part C of the Project (ii) at the end of 30 months Project implementation particularly with regard to preparation of the MCC Business Plan referred to in paragraph 4 of the Schedule to the Project Agreement; and (iii) at such other intervals as the Borrower and the Bank may agree.


Complied with

Cofinancing: In the event the Borrower is unable to obtain the AusAID Grant within 6 months of the effective Date, the Borrower shall (i) enter into other arrangements, satisfactory to the Bank, to obtain the required additional funding necessary for timely effective implementation of the Project; or (ii) without prejudice to the obligations of the Borrower under Section 4.02 of this Loan Agreement, provide additional counterpart funds to finance any shortfall which results from the Borrower's inability to obtain the AusAID Grant or the alternative funding referred to in subparagraph (i) above.


Complied with. AusAID grant released to ADB in full.

Counterpart Funds: Without prejudice to the generality of Section 4.02 of this Loan Agreement, the Borrower shall ensure timely and regular (i) submission of necessary requests for annual budgetary appropriations and disbursements of required counterpart funds; and (ii) release of such funds by the relevant authorities, to facilitate project implementation.


Partly complied with. Delays in the appropriation and release of counterpart funds. Shortfall in government counterpart funding

Audit: Without prejudice to the generality of Section 2.09 (a) of the Project Agreement, for purpose of audits of accounts and financial statements carried out pursuant thereto, the Borrower shall cause BPNG and IBBM to ensure that any independent auditors financed under the Loan shall be selected and engaged in accordance with competitive selection procedures acceptable to the Bank.


Complied with. Independent auditors are selected by Auditor-General’s Office.

ADB = Asian Development Bank, AusAID = Australian Agency for International Development, BPNG = Bank of Papua New Guinea, IBBM = Papua New Guinea Institute of Banking and Business Management, LA = loan agreement, MFI = microfinance institution, MSC = microfinance steering committee, PA = project agreement, PIU = project implementation unit, RFF = revolving fund facility.

28 Appendix 5

OVERVIEW OF PROCUREMENT OF CONSULTING SERVICES

Procurement

Year of

Contract Award

Contract Amount

($)

International Consulting Services Consulting firm 2002 2,128,345 Wau feasibility study consultant 2002 7,965 Microfinance conference facilitator 2005 4,470 Team leader/advisor 2007 330,615 Microfinance technical advisor 2007 281,068 WMB merger feasibility consultant 2007 29,170 Microfinance technical advisor 2007 139,261 Short-term microfinance consultant 2007 24,380 Short-term microfinance consultant 2007 29,660 Short-term microfinance consultant 2008 7,350 Microfinance specialist 2008 38,700 Team leader/advisor 2008 55,550 Microfinance technical advisor 2008 36,275 Human resource specialist 2009 95,000 NMB strategic plan consultant 2009 28,585 Risk management & internal audit specialist 2009 81,000 Domestic Consulting Services: Project manager 2001 163,463 Project assistant/acting project manager 2002 85,705 Microfinance course coordinator/trainer 2002 22,554 Microfinance course coordinator/trainer 2002 41,763 Microfinance training consultant 2003 1,760 Microbanking pilot scheme consultants (14)

a 2003–2007 2,939

Product development assistant 2004 35,086 Management information system specialist 2005 14,253 Project development assistant 2007 1,077 Management information systems specialist 2007 1,292 NMB = Nationwide Microbank, WMB = Wau Microbank. a The contracts of 14 domestic consultants engaged during 2003–2007 as branch managers, loan officers, and

customer service officers for the microbanking pilot scheme in Wau and Lae were assigned procurement contract summary sheet numbers by ADB but the majority of the costs for these consulting services were paid for through government counterpart funds. Source: Asian Development Bank.

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