IFC MSME-facility 2.0 2019-2026

The activities financed by the Trust Fund are 1. improving the legal and regulatory framework for the financial sector (Pillar I) which includes (i) technical assistance to client countries on best practices on legal and regulatory reforms to improve the MSME business environment, (ii) build capacity of key financial sector institutions and supervisory bodies to implement new laws and regulations and (iii) improve effectiveness and efficiency of public MSME finance institutions by putting in place suitable products and models. These activities are bank-executive (World Bank). IFC-executive activities are 2. improving the financial sector infrastructure (Pillar II) through digital finance with focus on the enabling environment and coordination mechanisms, expansion of access networks and digitalisation of payments. Also working on fintechs access to finance for MSMEs through policy support, pilot relevant fintech models and knowledge sharing. IFC also work to support the development of conducive financial infrastructure for banks and non-bank financial institutions such as credit bureaus, credit registries etc. provide advisory services and capacity building to facilitate greater access to finance for MSMEs by strengthening institutional framework for secured transactions. 3. Advisory services to financial and support institutions (Pillar III) to design and implement innovative products and services. IFC provides technical assistance to banks and MFIs on MSME banking with emphasis on MSMEs and women-led enterprises, young entrepreneurs. Micro Finance Institutions (MFIs) operations in terms of strategy, products, risk and credit management, customer service. The program is clearly operating under very difficult circumstances and with a high level of relevance for the region. It has suffered from delays from the beginning due to that it takes time for projects to be approved by governments and to start projects, longer time than was foreseen. On top of that extremely challenging economic environments with Covid-19 pandemic, the war in Ukraine and the high inflation and debt-levels of many countries and many countries being under severe economic crisis. Lately, the war in Gaza and the economic effects on neighbouring countries, specifically Lebanon but also Egypt, contributed to affecting the delivery of project outcomes and its implementation. Despite that, the program achieved important results during this reporting period across its three pillars. These include contributing to the drafting of the national financial inclusion strategy and regulations on the supervision of insolvency practitioners in Jordan, and the launch of a psychometric scoring model in Morocco. Results from advisory work with financial institutions achieved by nine different projects in Egypt, Morocco, and Tunisia comprise the launch of a new climate product by Enda Tamweel and an improved supply chain finance (SCF) product by Attijariwafa Bank, the registration of almost 2,000 new users of Enda Cashs wallet for digital payments, and the disbursement of more than 352,000 MSME loans, with a total value of US$889 million. IFC estimates that increased MSME lending spurred by advisory projects from the Facility has created a total of 16,276 to 26,866 jobs since the inception of these initiatives. However, if looking at direct job creation it is around 5 000 jobs that has been created this far. However, the results of the program must be explained mush more in teh contribution to the overall ecosystem for access to finance, rather than exact job creation, rather building on a Theory of Change that contributes to job creation and economic growth. Status of meeting targets The program has achieved 88 percent of its program-end output and 48 percent of its program-end outcome targets, having used 63 percent of the budget available for projects. It is well on track at the output level, with 98 percent of to-date targets achieved, but performance at the outcome level is mixed. While most of Pillar 3s and several of Pillar 2s outcome indicators have met their to-date targets (and some even already their program-end target), 43 percent of the programs outcome indicators are considerably behind. These indicators are related to the adoption of laws and regulations (Pillar 1), the implementation of recommended changes (Pillars 1, 2, and 3), the launch of and finance facilitation through new platforms (Pillar 2), and the number of users of new or improved digital financial services (Pillar 3). Main reasons behind these lagging results include the difficult political or financial situation faced by several program countries (affecting mostly Pillar 1) and other, project-specific implementation challenges (affecting mostly Pillar 2 and 3). At the outcome level, Pillar 3 is progressing faster than Pillars 1 and 2 but is also facing some delays. Micro-lending to women Gender-disaggregated portfolio data is available for three projects with MFIs: Al Tadamun in Egypt a leading MFI in Egypt solely serving female micro-enterprises, started in January 2023, Enda Tamweel in Tunisia, and Al Majmoua in Lebanon. In view of the nature of the respective projects, for Al Tadamun and Enda the micro loan indicators reflect the MFIs overall loan portfolio, while for Al Majmoua it reflects its new local-currency product. Together, the three projects have disbursed 929,754 micro loans to women, with a total value of US$810 million (see Table 4). Their latest combined outstanding loan portfolio includes 520,950 micro loans held by women, with a total value of US$303 million. Results that are relevant to womens access to finance are not only captured under the eight women-specific indicators from the facilitys logical framework. Some of these results are reflected under other indicators, such as the number of workshops and reports completed. For example, the support that Pillar 1 provides in West Bank and Gaza for the implementation of the national microfinance strategy includes a component to develop practical mechanism for outreach to women, youth, and marginalized communities. The financial institutions supported under Pillar 3 include the Microfund for Women in Jordan and Al Tadamun in Egypt. The former strongly focuses on and the latter exclusively serves female entrepreneurs. The program conducted a stress testing exercise for the Microfund for Women in 2021, and a comprehensive project with Al Tadamun was launched in January 2023. This project supports Al Tadamun in its efforts to: develop a digital transformation strategy; diversify its product offering through piloting and rolling out a new product catered to larger loan sizes; and prepare a new five-year business plan. Employment effects IFC is using its Jobs Estimation Tool. So far IFC is reporting that MSME 2.0 contributed to between around 4500-7500 direct jobs, which means additional permanent jobs created by MSMEs that received financing from a partner institution. Moreover, IFC reports that between 11 600-around 19 000 indirect additional jobs created in the MSME supply chain through consumption multiplier effects. It seems the biggest numbers of job creation is from Enda Tamweel in Tunisia. The Embassy´s comment around these results are something to be discussed with IFC into more detail around how this is measured and how reliable and which numbers that are accurate to report as employment creation numbers from the work. Deep Dive Studies are currently being produced Two deep-dive studies, which have been selected based on various criteria, including the studies learning potential, technical and practical feasibility, timeline, and budget requirements. The first study will assess the Facilitys NFS work with the Baghdad Chamber of Commerce in Iraq and the QNB Alahli bank in Egypt, while the second study will evaluate the projects with Enda Tamweel and Enda Cash in Tunisia. The final date for delivery of the reports will be by the end of the year 2024. Funding overview: The Embassy is by far the largest donor, contributed to total funds of 21 MUSD from a total amount of around 34 MUSD. UK FCDO has now withdrawn from the fund but was a larger contributor compared to SECO. End of 2023, actual disbursements, and commitments was around 22 MUSD which gives a burn rate of around 64 percent. It is an increase from the previous year´s burn rate of 55%. Tunisia (25%), Morocco (21%) and Egypt (16%) are the largest country programs, while Iraq (3%) is the smallest. Lowest burn rate in Palestine and highest in Iraq, Algeria and Morocco. As a TA-program it has high cosst for staff and consultants, staff costs represents 52% and consultants 31%. Some examples of results specifically related to 2023 Pillar 1: Improve the legal and regulatory framework for MSME finance - the adoption of a national entrepreneurship policy in Jordan - the issuance of regulations on responsible pricing in Egypt - imroved framework for crowdfunding in Morocco - work on e-signatures in Lebanon. Draft law governing the resolution and restructuring of the banking sector in Lebanon. - In Iraq the program has been providing inputs for the development of several government policies, such as NFIS and the strategy for digital payments by SMEs. - Governance manuals for deposit-taking and nondeposit-taking MFIs, whose drafting was supported by the program in West Bank and Gaza. These two regulations have not been issued yet but they have already been approved by the relevant authorities (and are expected to be published when the full package on microfinance banks legislation is ready). Pillar 2: Developing the financial infrastructure for MSME finance - The Jordan debt resolution project delivered a final draft of the Instruction on the Supervision of the Insolvency Practitioners - Workshops were conducted as part of the psychometrics project in Morocco. In preparation for the pilot of the psychometric scoring model with Attawfiq Micro-Finance, which was officially launched in November 2023, IFC held three training session. - Three reports that were completed during this period as part of the PCR (Public Credit Registry) project in Morocco. During the reporting period, IFC actively supported the central bank in preparing the procurement process for the revamped PCR, including the development of various procurement documents. - Implementation of the credit reporting project in Algeria was completed at the end of July 2023. While this project has met all its output targets, the central bank has only partially implemented the recommendations to revamp its PCR Pillar III: Advisory services to financial institutions to increase their offerings to MSMEs - This reporting period witnessed the implementation of recommended changes by 1 client, the launch of 2 new financial products, the registration of 6,552 new digital financial services users, and the disbursement of more than 352,000 MSME loans, with a total value of US$889 million. These results were achieved by 11 different projects in Egypt, Morocco, and Tunisia. - AWB in Morocco launched the new version of a product that it co-designed with IFC, leveraging the upgraded Supply Chain Finance (SCF) information technology solution. - Enda Tamweel in Tunisia launched "Eco-Shams v2", a new climate loan product targeted at farmers in rural areas and micro-entrepreneurs in urban areas seeking to free themselves from the use of fossil fuels and grid electricity by implementing solar photovoltaic systems. - The project with Enda Cash in Tunisia, Endas newly created payment company, is one of the projects that contributed to this periods results for the Number of newly registered users indicator. Enda Cash obtained its permanent license in September 2022 and launched its pilot phase in March 2023, offering its digital payment products through over-the-counter (OTC) services and e-wallets. - Al Tadamun, MFI in Egypt, disbursed 115,122 loans with a total value of US$50 million (100 percent to women, since Al Tadamun exclusively serves female customers), and at the end of the period it had an outstanding portfolio of 205,690 loans with a total value of US$53 million. However, Al Tadamuns portfolio has grown in terms of value and shrunk in terms of number of loans compared to the previous period and since the December 2022 baseline. This is largely a result of the challenging macroeconomic conditions in Egypt, particularly the significant increase in inflation rates, which has led to the contraction of the microfinance sector as a whole.

The IFC MSME-facility 2.0 has a theory of change that is based on the results and experiences of the first phase as well as extensive consultations with a wide range of stakeholders.  The overall impact goals in the results chain are job creation, GDP growth and decreased income inequality. The specific underlying MSME-facility impact goals include increased expansion and investments for MSME:s, increased profitability and productivity, MSME:s that are creating cascading effects for other enterprises in the same value chain. Under this impact objectives there is an outcome objective financial inclusion that include: - reduction of cost for MSME finance - ability to use movable collateral to obtain loans - increased access to financial services for MSMEs - increased access to financial services for women and youth These outcome objectives will be achieved by a number of activities within various priority areas (in the programme documents referred to as "Pillars". These pillars relationship and relevance for the intended impact on access to finance for MSMEs has also been assessed through evidence mappings conducted by the WBG MoE team.  These pillars are: Regulatory Framework: - improvements in ease of doing business - MSME finance support regulations operationalized and in place Financial Infrastructure: - financial institutions consulting credit bureaus for credit worthiness - movable assets used as lending collateral - mediation procedures routinely used Financial Institutions: - increase in lending to MSMEs - increase offer of financial products to women, youth, MSMEs - increase lending to women-owned MSMEs - increased access to digital financing solutions