Document of

The World Bank

Report No: NCO00003051

NOTE ON CANCELLED OPERATION REPORT

(IDA-48390; IDA-H6340)

ON A CREDIT

IN THE AMOUNT OF SDR1.6 MILLION

(US$2.5 MILLION EQUIVALENT)

AND ON A GRANT

IN THE AMOUNT OF SDR1.6 MILLION

(US$2.5 MILLION EQUIVALENT)

TO THE

KINGDOM OF CAMBODIA

FOR AN

AGRIBUSINESS ACCESS TO FINANCE PROJECT

December 22, 2014

Agriculture Global Practice

Southeast Asia Country Management Unit

East Asia and Pacific Region

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CAMBODIA – GOVERNMENT FISCAL YEAR

January 1 – December 31

CURRENCY EQUIVALENTS

(Exchange Rate Effective as of December 15, 2014)

Currency Unit = Cambodia Riel (KHR)

KHR 1.00 = US$ 0.00025

US$ 1.00 = SDR0.68

ABBREVIATIONS AND ACRONYMS

ANZ Australia and New Zealand Banking Group Limited

CEO Chief Executive Officer

ESOM Environmental and Social Operations Manual

FI Financial Intermediary

FSAP Financial Sector Assessment Program

GDP Gross Domestic Product

IDA International Development Association

IFC International Finance Corporation

ISR Implementation Status and Results Report

M&E Monitoring and Evaluation

MFI Micro Finance institutions

NCO Note on Cancelled Operation

PAD Project Appraisal Document

PDO Project Development Objective

PFI Participating Financial Intermediary

PO Portfolio Officer

RGC Royal Government of Cambodia

RM Relationship Manager

RSA Risk Sharing Agreement

RSF Risk Sharing Facility

SDR Special Drawing Rights

SEMS Social and Environmental Management System

SME Small and Medium Enterprise

TA Technical Assistance

TTL Task Team Leader

WBG World Bank Group

Vice President:

Country Director:

Country Manager:

Global Practice Senior Director:

Global Practice Director:

Practice Manager:

Project Team Leader:

NCO Team Leader :

Mr. Axel van Trotsenburg, EAPVP

Mr. Ulrich Zachau, EACTF

Mr. Alassane Sow, EACSF

Mr. Juergen Voegele, GFADR

Ms. Ethel Sennhauser, GFADR

Mr. Nathan M. Belete, GFADR

Mr. Paavo Eliste, GFADR

Mr. Paavo Eliste, GFADR

KINGDOM OF CAMBODIA

Agribusiness Access to Finance Project

CONTENTS

Data Sheet:

A. Basic Information

B. Key Dates

C. Ratings Summary

D. Sector and Theme Codes

E. Bank Staff

F. Ratings of Program Performance in ISRs

Section 1. Context, Project Development Objectives, and Design ................................. 1

Section 2: Key Factors Affecting Implementation and Outcomes. ................................ 3 Section 3. Project Implementation and Reasons for Cancellation .................................. 5

Section 4. Assessment of World Bank Group and Borrower Performance .................... 8 Section 5. Lessons Learned ........................................................................................... 10

Annex 1. Bank Lending and Implementation Support/Supervision Processes ............. 12 Annex 2. List of Supporting Documents ...................................................................... 14

MAP No. IBRD 33381R…………………………………………………….………...15

A. Basic Information

Country: Cambodia Project Name:

Cambodia Agribusiness

Access to Finance

Project

Project ID: P121809 L/C/TF Number(s): IDA-48390,IDA-H6340

NCO Date: 12/21/2014

Lending Instrument: Financial Intermediary

Loan (FIL) Borrower:

ROYAL

GOVERNMENT OF

CAMBODIA

Original Total

Commitment: XDR 3.20M Disbursed Amount: XDR 0.13M

Revised Amount: XDR 0.13M

Environmental Category: Financial Intermediary

Implementing Agencies: International Finance Corporation (IFC)

Co-financiers and Other External Partners: N/A

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 05/19/2010 Effectiveness: 05/12/2011 05/05/2011

Appraisal: 09/29/2010 Closing: 12/31/2018 06/26/2014

Approval: 12/16/2010

C. Ratings Summary

Performance Rating by NCO

Outcomes: Not Applicable

Risk to Development Outcome: Not Applicable

Bank Performance: Moderately Satisfactory

IFC Performance Moderately Satisfactory

PFI Performance Moderately Unsatisfactory

Borrower Performance: Moderately Satisfactory

D. Sector and Theme Codes

Original

Sector Code (as % of total Bank financing)

Agro-industry, marketing, and trade 50

Microfinance 25

SME Finance 25

Theme Code (as % of total Bank financing)

Micro, Small and Medium Enterprise support 50

Rural markets 50

E. Bank Staff

Positions At NCO At Approval

Vice President: Axel van Trotsenburg James W. Adams

Country Director: Ulrich Zachau Annette Dixon

Sector/Practice Manager: Nathan Belete Jeeva A. Perumalpillai-Essex

Project Team Leader: Paavo Eliste Paavo Eliste

NCO Team Leader: Paavo Eliste

F. Ratings of Project Performance in ISRs

No. Date ISR

Archived DO IP

Actual

Disbursements 1

(USD millions)

1 08/09/2011 Satisfactory Satisfactory 3.00

2 09/04/2012 Moderately

Unsatisfactory

Moderately

Unsatisfactory 3.00

3 03/20/2013 Unsatisfactory Unsatisfactory 3.00

4 10/22/2013 Unsatisfactory Unsatisfactory 3.22

1 These figures are before IFC refunded IDA. Actual net disbursements amounted to

XDR 0.13 million.

1

Section 1. Context, Project Development Objectives, and Design

1. Context. Cambodia’s economy experienced significant growth throughout the

2000s and showed resilience against external shocks during the 2008/09 economic and

financial crisis when overall GDP contracted. The agriculture sector emerged in the late

2000s as one of the key drivers of the country’s economic growth, driven primarily by the

crop sector where paddy production made up about one-fourth of the sector’s value-added.

Paddy production reached 7.3 million tons in 2009, up from 4.2 million tons in 2001, with

estimated domestic surplus of around 3 million tons. It was estimated that about 2 million

tons of paddy moved to Vietnam and Thailand through informal border trade in 2009,

where it was milled and exported to international markets. Formally processed (milled)

rice exports from Cambodia reached about 12,613 tons in 2009, up from about 2,000 tons

in 2004.

2. The sector’s performance contributed to the growth of agribusiness enterprises as

more raw materials became available for trading and value-added processing. However,

the value-addition of agriculture remained limited compared to that of neighboring

countries. This was because Cambodia’s agribusiness sector, where most of the value

addition occurred, remained largely traditional in nature. Limited access to finance was

one of the main constraints to the development of a modern, internationally competitive

agro-processing industry, which could utilize the agricultural potential of the country.

3. In 2010, the Royal Government of Cambodia (RGC) prepared a policy on the

promotion of paddy production and rice exports, with the objective of reaching a goal of 1

million tons of milled rice formally exported by 2015. A key policy action called for the

establishment of a credit guarantee scheme to encourage commercial bank lending to the

rice sector. Subsequently, RGC requested IDA and IFC support in 2010 to establish such a

financial instrument.

4. Rationale of the Operation. The rationale for the joint IDA/IFC involvement

through a credit guarantee scheme was two-fold. First, the Cambodian economy was

dominated by small and medium enterprises (SMEs) and micro businesses, numbering

about 55,000 in 2007. Agriculture and agribusiness SMEs made up about one-third of all

these SMEs. They were significant contributors to rural employment and local economic

growth. However, most of these firms were largely informal with limited access to

finance, limiting their future growth potential. Second, despite Cambodia’s banking

system having excess liquidity in 2009 and 2010 lending to the agribusiness sector was

limited given the perception that it was riskier and/or less profitable than other sectors.

Due to this perceived risk, banks were charging high lending rates, attaining margins of up

to 6percent on their agribusiness portfolio. Consequently, the economic development

potential of this segment of the economy remained largely untapped. There was thus a

strong justification for creating a financial instrument allowing the banks to hedge against

loan losses emanating from this sector to unlock part of this excess liquidity by lending to

agribusinesses, which otherwise would have continued to face difficulties in accessing

loans from banks.

2

5. PDO and Key Performance Indicators. The project development objective

(PDO) was “to increase the sustainable flow of credit to agribusinesses sector.” The

PDO Outcome Indicators were: increased number and value of loans disbursed to

agribusiness SMEs by participating financial institutions (PFIs) on market-based terms.

The PDO and results framework were not changed during implementation.

6. Target groups. The primary project target groups were agribusiness enterprises in

Cambodia where activities ranged from trading, storing, processing, packaging, exporting

and providing related logistical support. The majority of these enterprises participated in

rice value chains (as processors/millers, traders, distributors, input dealers, etc.). The

secondary project target groups were the eligible Participating Financial Intermediaries

(PFI) that would provide credit. The facility was to help them build agribusiness portfolios

and a broader client base and to improve their understanding of the risks involved in

lending to the sector.

7. Project Components. The project had one component, the Risk Sharing Facility

(RSF), which was to provide a partial credit guarantee to cover 50percent of losses of a

portfolio of new agribusiness loans by PFIs. It comprised an US$5 million first loss

coverage provided by the RGC through IDA financing, and a second loss of US$20

million of IFC financing. It was expected that US$5 million IDA financing would

leverage up to US$50 million of commercial bank lending to the agribusiness sector. The

RSF structure would have reimbursed the PFIs for a fixed percentage (50percent) of

incurred loan losses. The PFIs had a three-year ramp-up period during which agribusiness

loans could be brought under the coverage of the guarantee facility. The project was a

pilot under Phase II of IDA/IFC Pilot Program for Risk Sharing Facilities (RSF). The

design of the RSF followed thus the general structure of the previous pilots. The project

was designed as a stand-alone RSF, which was embedded in a wider IFC Advisory

Services (AS) programs in Cambodia. The project component was not changed during

implementation.

8. The facility was open to all eligible FIs that met the project selection criteria. The

RGC, IDA and IFC closely consulted on the selection of PFIs. During project preparation,

IFC worked with a number of FIs in Cambodia for whom it has carried out preliminary

checks and who were expected to meet basic eligibility criteria for the project. Some of

these banks had expressed initial interest to participate in the RSF, out of which one bank

(ANZ Royal) completed IFC’s investment review. This bank was the first to identify a

viable pipeline of loan applications for transactions that could be approved following

IFC’s Board approval and signing of the Risk Sharing Agreement with IFC. In parallel,

IFC sought interest from additional FIs to participate in the facility. It was envisaged that

the RGC, IDA and IFC would carry out a comprehensive performance review of the PFIs’

loan portfolio and utilization of the facility 18 months after project effectiveness.

3

Section 2: Key Factors Affecting Implementation and Outcomes.

Project Preparation, Design and Quality at Entry.

9. Soundness of Background Analysis. While no specific analytical study was

carried out to inform the preparation of this RSF, the available sectoral analytical evidence

at the time of the project preparation provided sufficient information to guide the project

design. For example, an IFC survey of SMEs from 2009 showed that about 90 percent of

agribusiness SMEs in Cambodia had identified lack of access to finance as their major

constraint for growth, compared to only two-thirds of manufacturing and service sector

SMEs2. The study showed that agribusiness firms needed both large amounts of working

capital to purchase raw materials during harvest times, and term capital to upgrade or

expand their processing equipment. For example, while agribusiness SMEs made up

about one-third of all SMEs in Cambodia, their financing needs were about half of the

total financing demand of all SMEs. Another survey of 124 agribusinesses in Cambodia

in 2009/10, (less than 1percent of all agribusiness SMEs in Cambodia), showed that their

demand for bank finance was about US$26 million, or about US$215,000 per enterprise,

of which about two-thirds was needed for long-term loans3.

10. Assessment of Project Design. The choice of RSF was considered an appropriate

financial instrument during project preparation, given the liquidity of Cambodia’s

financial sector in 2009 and 2010 and the availability of funds for lending was not

considered a constraint. At that time, some 36percent of banking assets were in the form

of cash and quasi-cash assets, which earned little return. Most banks were also adequately

capitalized, with regulatory capital levels at around 28 percent of total assets in 2008;

therefore, there was sufficient capital available within the financial sector to fund

investments in agriculture, agro-industry and SMEs in general. Yet, commercial bank

lending to agriculture was only about US$130 million in 2008, representing about 5

percent of all lending, while the lending to the agribusiness sector, which was classified as

manufacturing, was about US$80-110 million or about 3-4percent of total lending. The

reason for such limited lending, despite of liquidity situation in the banking sector, was

perceived low profitability of agribusiness enterprises, lack of information about potential

borrowers, and resulting high risk perception about the sector. The purpose of the RSF

was to unlock commercial bank lending to agribusinesses by providing them the credit

protection needed to cover their potential losses (if occurred) and, therefore, to mitigate

the perceived high risk of agribusiness lending.

11. Environmental and Social Safeguards. The project was classified as Category

FI. The project triggered OP/BP 4.01 on Environmental Assessment, OP/BP 4.10 on

Indigenous Peoples and OP/BP 4.12 on Involuntary Resettlement. It was anticipated that

the majority of transactions covered by the RSF would have environmental or social risks

2 IFC. Understanding the SME Sector in Cambodia and Their Need for Financial Services and Products.

2010 3 JICA. The Preparatory Survey on the SMR Two-Step Loan Project in Kingdom of Cambodia. March, 2010

4

that would be readily identified and addressed by the application of IFC Performance

Standards and World Bank Group Environmental Health and Safety Guidelines. As a

condition of joining the RSF, each new PFI would be required to prepare a Social and

Environmental Management System (SEMS) to guide them in identifying, assessing and

managing environmental and social risks associated with loan applications. The

formulation of SEMS would need to be acceptable to IFC and IDA based on the

framework presented in the Environmental and Social Operations Manual (ESOM). The

IFC would work with the PFI to determine if any new PFI’s SEMS would meet criteria in

the ESOM. The draft ESOM was disclosed to the Infoshop and in the Cambodian Public

Information Center on September 3, 2010. The final ESOM was disclosed at both

locations on November 1, 2010.

12. Implementation Arrangements. According to the design, the RGC was the

recipient of the IDA credit/grant funds while IFC was the implementing agency on behalf

of RGC. IDA funds to cover RGC’s ‘first loss’ portion of funds were transferred, on

behalf of the RGC, to a Trust Fund account which was administered by IFC. IFC, in its

capacity as facility agent, was responsible for all operational aspects of the management

of the Trust Fund and RSF, and acted as a liaison between PFIs and the RGC during

project design and implementation. Its operational responsibilities included identification

of qualified PFIs and carrying out their due diligence; signing a risk-sharing facility

agreement with selected PFIs; assessment of project performance and compliance with

applicable fiduciary policies; verification of loan losses and payment of eligible losses;

and monitoring and evaluation (M&E) of the results. Given the confidentiality of the

business relationship between IFC and PFIs, IFC was solely responsible for its

interactions with PFIs and provided IDA/RGC necessary information for M&E purposes.

13. Assessment of Risks. The overall risk rating at entry was “moderate” which seem

to be inadequate in retrospect. The main challenge during the preparation was to find

enough qualified PFIs that would be willing to participate in the RSF. This issue was

identified also as the main risk for the project and was rated “moderate”. IFC had been

working with a number of financial institutions in Cambodia for whom it had carried out

due diligence and who were expected to meet basic eligibility criteria for the project. The

RGC and IDA expressed its concern over going ahead with only one PFI, and IFC agreed

to make best efforts to bring at least one or two additional FIs under the guarantee facility

during the 18 month period following project effectiveness.

14. Another key risk which was identified during preparation was possible low

utilization of the RSF by banks. This is related to possible lack of understanding of the

technical details by the PFIs. The team addressed this risk through building enough

flexibility into the legal agreements which would have allowed changes in loan eligibility

criteria, structure of the RSF and product design, if necessary, to ensure that the facility

would meet the needs of agribusinesses and banks, and to stimulate the demand for the

facility.

5

15. An additional risk, not identified during the preparation, was changing market

conditions that would have made the RSF financially unviable due to declining lending

margins in the sector.

16. Monitoring and Evaluation (M&E). The project established an M&E system

and results framework. The M&E was responsibility of the IFC, as the facility agent,

while the PFI was responsible for providing agreed data on its loan portfolio and bank

performance. IFC portfolio officer was responsible for the interactions with the PFI and

provide IDA and RGC necessary information for M&E purposes. The yearly joint

supervision missions conducted comprehensive assessments of the monitoring indicators

and an evaluation of project’s performance both in terms of portfolio performance of

guarantee scheme and development impact. The IFC compiled and shared with the IDA

and RGC three quarterly project progress reports which tracked project performance

indicators. The quarterly reports provided the summary discussion of the project progress

and provided data on the performance of the portfolio of agribusiness loans under the

facility. This data was used to review development impact of the agribusiness utilization

of loans and their safeguard compliance through in-depth interviews which took place

during joint IDA, IDC, RCG supervision missions. However, these loans were later

removed from RSF coverage by the PFI.

Section 3. Project Implementation and Reasons for Cancellation

17. Context. In early 2011 the RGC, IDA and IFC signed the Risk Sharing

Framework of the project. IFC also signed a Risk Sharing Agreement (RSA) with the

ANZ Royal - the first PFI to participate in the program. The ANZ was expected to reach a

total portfolio of underlying agribusiness loans of US$30 million, with the risk being

shared 50:50 between ANZ and IFC, with IDA and the RGC providing a first loss to IFC

amounting to up to US$3 million. At the time of project preparation, ANZ had already

identified a pipeline of agribusiness loans which it intended to cover under RSF. The

remaining IDA funding of US$2 million was earmarked for other banks as they became

eligible to participate in the project.

18. Slow Start-up and First Amendment of RSA. The project experienced a slower

than expected start during its first year. In order to speed up booking the loans under the

facility and tailor the facility to the PFI lending program to better suit the financing needs

of its borrowers, RGC, IDA and IFC agreed to amend the RSA with ANZ on December 9,

2011. The following changes were introduced: (i) while the PAD and legal documents

were clear about inclusion of short term working capital and longer term investment loans

under the facility, the ANZ requested further clarification in the current language on the

inclusion of short term working capital credit lines in the eligibility criteria for the RSF;

(ii) clarification that all loan amounts will be calculated on the basis of disbursed amounts

rather than committed amounts; (iii) clarification of the extension of the ramp-up period

from two to three years to ensure full use of the RSF (PAD stated ramp-up of three years);

and (iv) modifications made in the Single Borrower Exposure limits which would allow

6

the ANZ to better meet the demand for agribusiness SMEs, especially in the rice milling

sector. The amended RSA was signed between IFC and ANZ on January 19, 2012.

19. The amendment, however, did not increase significantly the loans booked under

the facility. The cumulative value of loans disbursed by ANZ under the facility during its

first year of implementation was only US$5.3 million or 35 percent of its first year

lending target of US$15 million. This caused the project to be downgraded to “Moderately

Unsatisfactory”. The reasons for slow loan disbursements cited by ANZ included: (i)

difficulties to evaluate credit worthiness of potential borrowers due to the informality of a

large share of the agribusiness sector in Cambodia (i.e. lack of credible financial

statements, etc.); and (ii) increasing competition from other banks for potential

agribusiness clients. However, it should be noted that loans which were made by ANZ

with the support of RSF were used to upgrade rice milling equipment, which increased

mills’ processing capacities to meet increasing export demand, and for working capital.

As such the project did contribute to supporting the implementation of RGC’s rice policy.

20. Second Amendment to Legal Agreements. In September 2012 the IDA, IFC and

RGC agreed on the second amendment to legal agreements, which resulted in the

following changes:

(i) Reallocating SDR 195,000 out of SDR 640,000 for Category 3 - First Loss

Coverage for the third PFI - to refinance the Project Preparation Advance for the

Community Based Agricultural Productivity Project (P117642); and

(ii) Adding Category 5 in the disbursement table for the repayment of the project

Preparation Advance for the Community Based Agricultural Productivity Project

in the amount of SDR 195,000.

21. Suspension of the RSF. Delays in implementing the RSF continued in the second

year, and in late-2012 the RSF was suspended. One of the challenges was that there was a

lack of clarity over the interpretation of the eligibility criteria for agribusiness loans.

According to the RSA signed between IFC and the ANZ, all loans that met the eligibility

criteria were to be included in the Facility, as the coverage was to be provided on a

portfolio basis, to avoid the case where ANZ would include only very risky or delinquent

loans. However, during project implementation ANZ wanted to change this condition in

order to have discretion on which loan would be included in the Facility. As a result ANZ

did not include the entire agribusiness loan portfolio under the guarantee coverage. After

several rounds of discussion, it was agreed that all SMEs loans could potentially be

included, but no clear guidelines were developed concerning larger corporate

agribusinesses. In addition, discussions took place on guarantee pricing which ANZ now

felt was no longer commercially viable given the significant increase in liquidity in the

Cambodian banking sector and the renewed willingness of banks to lend to the

agricultural sector. This development led IDA to downgrade the project rating to

Unsatisfactory.

7

22. Addition of potential new PFIs. IFC continued to search for additional PFIs to

participate in the facility. However, given the lack of interest from the eligible commercial

banks, it was agreed to focus the facility on Micro Finance Institutions (MFIs). The joint

IDA/IFC team met with one MFI to explore its interest in joining the facility, but the joint

team concluded that this bank needed more time to improve its capacity and develop

agribusiness lending systems before it could implement RSF. Discussions with other

potential MFIs also did not yield positive results. Several potential MFIs were facing

liquidity shortfalls in 2012, which was not the case during project preparation. Others had

opaque ownership structures which prevented IFC from working with them.

23. Termination. During the joint IDA/IFC meeting with ANZ on December 6, 2012,

the latter made proposals for the continuation with the RSF. It was agreed in principle to

define the cut-off for SMEs at the maximum annual turnover level of US$15 million (as

per IFC standard definition of upper ceiling for SMEs). This approach was approved by

IFC management in February 2013 and the IFC team started to work on a historical

adjustment of the loans, which was needed before discussing other possible changes in the

legal agreements enabling ANZ to start booking new loans under the facility.

24. However, ANZ subsequently advised that it had concluded the RSF as structured

was no longer economically viable and expressed its wish to terminate it. This decision

based on the following reasons: (i) overall commercial bank lending to agribusinesses had

sharply increased between 2011 and 2013, with some local banks aggressively targeting

this segment; and (ii) such increased competition had resulted in a decrease in lending

rates, and decreased margins, which made the RSF no longer commercially viable. Data

gathered by the IFC team indicated that lending margins had dropped from 5 to 6 percent

as of January 2009 to approximately 4 percent in mid-2011, and further to approximately

2 percent in early 2013 compared to about 2.5 percent of RSF fees. For these reasons, all

exogenous to the project, while the RSF did meet the needs of the ANZ at the beginning

of the project in 2010, it had lost its relevance by 2013 as it had become financially

unviable due to rapid changes in the Cambodian financial sector.

25. In October 2013, the IDA-IFC team submitted a proposal to RGC to terminate the

RSF and re-allocate the US$5 million IDA funds to the provision of non-lending services

to Cambodian agribusinesses, in order to make them more attractive for financial

institutions, following the existing implementation arrangements. RGC expressed a lack

of interest in pursuing this option and on December 26, 2013, it requested that the Bank

cancel the project.

26. The project did not materialize as expected due to the rapidly changing market

conditions which were beyond its control. The team responded to these dynamics by

restructuring the project, but it was not enough to maintain the financial viability of the

facility. However, the agribusiness sector has seen significant expansion of credit and

declining interest rates since 2010 driven by general improvement of financial sector and

enabling environment. Both Bank and IFC have been supporting broader financial sector

reforms through FSAP and various advisory services. For example, IFC contributed to the

establishment of Cambodia Credit Agency which allowed the banks to better assess the

8

credit worthiness of the potential borrowers. In this regard, the original goal of the

program to increase PFI financing to agribusinesses was indeed achieved, although it was

not attributed to the project which did not materialize. The data provided by ANZ showed

that the value of loans it made to agribusinesses exceeded the planned landing targets

under the RSF. The table below shows that the value of ANZ lending to agribusinesses

(excluding plantation and other primary production activities) increased from $25.5

million in 2010 (baseline year) to $69 million in 2013. The incremental increase of $43.5

million is in line with the projected incremental value of $40 million agribusiness lending

over the same time period from the PAD. This data illustrates that ANZ was able to reach

its agribusiness sector lending targets without the support of the RSF coverage due to the

changes in the market conditions, which explains the reason to terminate the facility.

Table: Projected PAD loan volumes and actual PFI loan volumes (2010-2013)

2010

(Baseline) 2011 2012 2013

Projected value of loans (USD)

disbursed to agribusiness SMEs from

PAD

- 15,000,000 15,000,000 10,000,000

Actual ANZ value of loans (USD)

distributed to agribusiness SMEs 25,487,583 37,186,760 55,519,786 69,007,819

Incremental ANZ actual value of

agribusiness loans

11,699,177 18,333,026 13,488,033 Source: ANZ and Project Appraisal Document

27. Furthermore, the overall commercial bank lending to agriculture increased from

US$400 million in 2010 to US$920 million in 2012. In terms of outcomes, the rice milling

sector, which was the main beneficiary of this credit expansion, has seen its exports

increase from 105,260 tons in 2010 to 378,856 tons in 2013.

Section 4. Assessment of World Bank Group and Borrower Performance

Bank Group Performance: Moderately Satisfactory.

28. Quality at Entry Performance: Moderately Satisfactory. The project was

prepared and processed efficiently in seven months by a joint IDA-IFC team. Identified in

May 2010, the project went to the Board on December 16, 2010, and became effective on

May 5, 2011. The project was designed in close coordination with the Ministry of

Economy and Finance. Its design was in line with the country’s priorities and strategies as

expressed in RGC’s policy on the promotion of paddy production and rice exports. The

technical design of the project was sound and based on (i) experiences and lessons from

three pilot Risk Sharing Facilities in the Africa Region (Mali, Ghana and Madagascar);

(ii) recommendations made by an IDA-IFC Task Force Report in its review of the use of

IDA funds for Risk Sharing Facilities and Partial Credit Guarantee projects; and (iii)

sectoral analytical work carried out by IFC and donors. The PDO was highly relevant

during the project preparation given the significant liquidity in the credit markets and lack

of willingness of the banks to lend to agribusinesses. The Results Framework was

9

developed based on extensive discussions between IFC and IDA teams in participation

with the PFIs. All indicators were appropriate to measure the intended outcomes and

outputs, as well as easily monitorable from the data to be provided by the PFIs. The IFC’s

assessment of the PFIs’ commitment and the risks was sound and based on its widely

accepted financial modelling results.

29. The project design was relatively simple in that it included only one component –

i.e., RSF. It did not have a stand-alone TA component as in other RSF pilots and relied

instead on existing IFC Advisory Services. This approach facilitated speedy preparation of

the project, as per IFC’s request at the time, and met the needs of the first PFI.

30. Three WBG parties were involved in project preparation and implementation –

IDA, IFC advisory team and IFC investment team. The IDA-IFC team spent substantial

amount of time to discuss the details of the RSF and its utilization with the PFI. The PFI

was closely involved in the design of the facility. The IDA-IFC team included qualified

financial sector, banking and agriculture/agribusiness specialists, some of whom had prior

experience with the design and implementation of similar RSFs in Africa Region. RGC

strongly supported the project and provided a counterpart team that engaged closely with

the WBG team throughout project preparation and negotiations. Both project task team

leaders (TTLs) were based in the East Asia Region – the Bank TTL in Phnom Penh and

the IFC operational TTL in Hanoi. The core IFC investment team was based in Ho Chi

Minh City, which enabled frequent visits to Cambodia, with a residual technical team

members based in Washington, DC.

31. Quality of Supervision: Moderately Satisfactory. There were three semi-annual

joint IDA-IFC supervision missions, which included briefings to the RGC. In addition,

there were numerous visits by the IFC investment team from Ho Chi Minh City and

Washington to discuss project implementation issues directly with the PFI. The IFC

produced quarterly progress reports on a timely basis and these were shared with IDA and

RGC. The IFC team kept the IDA team informed on implementation issues.

32. When the project faced implementation issues in 2012 as detailed in Section 2

above, several meetings were organized both between the IDA/IFC and the PFI in order to

find feasible solutions. Discussions also took place between IFC's and the PFI's regional

management teams in order to understand the strategic issues that the project may have

been facing. A detailed supervision mission was conducted by the IFC and IDA in the fall

of 2012 and various scenarios were analyzed and put forward in order to assess options to

potentially modify the scope of the project and restructure the facility. Such scenarios

were discussed at length with the PFI. Regular meetings and discussions continued in

2013 until termination of the facility, as detailed in Section 2 above.

Borrower Performance: Moderately Satisfactory.

33. Royal Government of Cambodia Performance. The Government strongly

supported the project and engaged actively in project preparation. It appointed a project

preparation team, which met with the IDA-IFC team on a regular basis to discuss

10

preparation progress. The RGC team also engaged closely during the supervision

missions and reviewed the performance reports. Rating: Satisfactory.

34. Implementing Agency Performance. The project was implemented by the IFC

investment team, which included a Relationship Manager (RM), based in Ho Chi Minh

City, and a Portfolio Officer (PO), based in Phnom Penh. The proximity of the RM and

PO enabled regular contacts with the PFI, including on-site visits. The team also received

strong support from the Portfolio Manager as well as from the RM for the ANZ Group

based in Hong Kong, SAR, China. During project preparation, the IFC team conducted

thorough discussions with the PFI to explain the technical and legal aspects of the project

and functioning of the facility. Quarterly reports from the PFI were received on time and

summary reports were provided to IDA and RGC. The IFC actively coordinated the

restructuring of the RSA between the PFI, IDA, and the RGC to reach agreement and to

proceed swiftly with the restructuring. Specifically, the IFC team actively engaged in

discussion with the PFI, both at operational and management levels, in order to reach a

solution. Actions taken also included a detailed World Bank portfolio review in

Cambodia, which took place in November 2012, as well as internal discussions with

management. The restructured RSA was processed in bout 3 months between October

2012 and January 2013, which is quite rapid given that all changes had to be agreed and

approved by IFC, IDA, PFI and RGC. However, the IFC was not able to bring additional

PFIs under the facility due to the changes in the credit market conditions which affected

the financial viability of the facility. Rating: Moderately Satisfactory.

35. PFI Performance. Implementation of the loan portfolio under the RSF was the

responsibility of the PFI (ANZ). Following a change in the PFI’s country management,

which assessed that the RSF was not financially viable due to declining lending margins

in the sector, the PFI no longer actively used the RSF. The PFI was nevertheless able to

increase its lending volumes to agribusiness sector without the RSF, contributing thus to

the overall growth of agribusiness sector as envisioned under the project. Rating:

Moderately Unsatisfactory.

Section 5. Lessons Learned

36. If RSFs are to become more streamlined lending products for the WBG, there are a

number of steps to increase design efficiency as discussed below:

(a) Ensure that PFIs commit to the technical structure and eligibility criteria of

the RSF. The RSA with ANZ was signed four months after Board approval. However,

by the time the first quarterly report was due, ANZ had already flagged issues, such as

inclusion of working capital loans in the facility and calculation of fees based on the

utilization of these working capital loans. While it was clear from the IDA/IFC side

that working capital loans were included under the facility, ANZ claimed that it did

not fully understand this. As for the fees, as they were calculated on the outstanding

portfolio amount at the end of each quarter, ANZ asked to revise the RSA to clarify

the inclusion of short term loans, and calculate the fees on the actual utilization over

11

the quarter. This led to a lengthy renegotiation process, and an eventual amendment

after a six-month consultation process internally within IFC, ANZ, IDA, and the RGC.

(b) Ensure the commitment of the PFI to the target market, and its ability to

serve the agreed target market. The PFI senior management commitment to the

development of the target market (e.g. SME or agribusiness) and to a clear vision for

market positioning is critical and all senior managers should be on board. For

multinational PFIs, it is also critical that regional management be supportive of the

initiative taken by the subsidiary.

(c) There is no evidence that going ahead with one PFI will create interest from

others to follow. It should be preferable, if not obligatory, to start a RSF with at least

two banks. In cases where the PFIs are local banks, they would usually require

technical assistance to build lending capacity among SMEs. This would require a

stand-alone TA component - as was done in the Africa Region RSF pilots (see point f

below).

(d) IFC guarantee pricing should be more flexible towards changing market

conditions and risk perceptions of the banks in fast growing countries such as

Cambodia. Commercial banks are highly sensitive to levels of facility fees given the

declining lending margins in highly competitive environments where some banks are

learning rapidly about risks and are willing to lend to riskier segments while others

may resort to more lax lending standards. While the commercial principles of the IFC

business model are generally justified, there may be exceptions where such principles

may not be fully warranted (and the “subsidy” provided by IDA financing is not

enough to reduce facility cost), given the significant public goods nature of the stated

objectives. The RSF may be such a case.

(e) The ramp-up period of the facility should allow sufficient time for the PFI to

develop its procedures and build up its portfolio. Some PFIs might need to develop

new credit processes for the target market. For example, to target SMEs, PFIs might in

general need at least 1.5 years for market strategy development, credit processing

development, loan platform development, product development, staff training, and

marketing. Thus the ramp-up period for the RSF with different PFIs would need to

vary depending on the readiness of the PFIs for SME lending (benchmarks to measure

readiness could include SME market analysis, SME market segmentation, SME

strategy, product development, credit process for SME lending, staff training, IT

system, loan platform, delivery channels, etc.). It is expected that the RSF portfolio

build-up will be slower in the first two years and then grow from the third year.

(f) Targeted TA to potential SME borrowers is critical to the success of a RSF. It

is better to outsource such TA to SMEs to experienced consulting services. The TA

has to be properly designed and implemented by experts that are selected by IFC/IDA

on a competitive basis.

12

Annex 1. Bank Lending and Implementation Support/Supervision Processes

(a) WBG Task Team members

Names Title Unit Responsibility/

Specialty

Lending

Paavo Eliste, Lead Rural Development Specialist GFADR Task Team Leader

Koichi Hiramoto Senior Investment Officer IFC co-TTL

Luc Lecuit

Harvey Van Veldhuizen

Satoshi Ishihara

Julia Brickell

Nathalie Louat

John Law

Richard Caines

Alexis Diamond

Martin Habel

Operations Advisor

Lead Environmental Specialist

Senior Social Development Resident

Representative

Structured Finance Specialist

Banking Specialist

Principal Environmental Specialist

Evaluation Officer

Senior Financial Officer

SARDE

OPCQC

GSURR

IFC

IFC

IFC

IFC

IFC

IFC

Operations quality

Env safeguards

Social safeguards

Advisor

Structuring

Banking Specialist

Safeguards

M&E

Portfolio analysis

Cheena Trikha

Jung Mee Kim

Etienne de Belloy

Investment Officer

Investment Officer

Investment Analyst

IFC

IFC

IFC

Investment Officer

Investment Officer

Investment Analyst

Roch Levesque

Mark Walker

Glenn Jessee

Senior Counsel

Chief Counsel

Principal Counsel

LEGES

LEGES

IFC

Legal

Legal

Legal

Ahmet Soylemezouglu Financial Sector

Specialist/Consultant

GFADR Financial sector/

banking specialist

Chris Fabling

Seida Heng

Thao Le Nguyen

Ahsan Ali

Ngozi Blessing Malife

Senior Financial Management

Specialist

Financial management Specialist

Senior Finance Officer

Lead Procurement Specialist

Program Assistant

GGODR

GFMDR

CTRFC

GGODR

GENDR

Financial

management

Project FM

Disbursements

Procurement

Team Assistance

Narya Ou

Vachraras Pasuksuwan

Tho Nhu Hoang

Program Assistant

Program Assistant

Team Assistant

EACSF

EACTF

IFC

Team assistance

Team assistance

Team assistance

Supervision

Paavo Eliste Lead Rural Development Specialist GFADR Task Team Leader

Koichi Hiramoto Senior Investment Officer IFC co-TTL

Charles Schneider

Richard Caines

Alexis Diamond

Martin Habel

Bas Rozemuller

Resident Representative

Principal Environmental Specialist

Evaluation Officer

Senior Financial Officer

Advisory Services Officer

IFC

IFC

IFC

IFC

IFC

Advisor

Safeguards

M&E

Portfolio analysis

Advisory Officer

Etienne de Belloy Investment Analyst IFC Investment officer

Roch Levesque

Glenn Jessee

Senior Counsel

Principal Counsel

LEGES

IFC

Legal

Legal

Chris Fabling

Senior Financial Management

Specialist

GGODR

Financial

management

13

Seida Heng

Ngozi Blessing Malife

Financial management Specialist

Program Assistant

GFMDR

GENDR

Project FM

Team Assistance

Narya Ou

Vachraras Pasuksuwan

Tho Nhu Hoang

Program Assistant

Program Assistant

Team Assistant

EACSF

EACTF

IFC

Team assistance

Team assistance

Team assistance

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including

travel and consultant costs)

Lending

FY10 0.00 30.33

FY11 11.46 103.41

Total: 11.46 133.74

Supervision/NCO

FY12 5.85 28.28

FY13 6.25 31.50

FY14 8.69 47.53

FY15 as of December 15, 2014 0.75 4.11

Total: 21.54 111.42

14

Annex 2. List of Supporting Documents

1. World Bank. Cambodia Agribusiness Access to Finance Project: Restructuring

Paper for refinance the Project Preparation Advance (PPA No. Q7090-KH) for the

proposed Community-Based Agricultural Productivity Project (CBAPP, P117642).

2. Risk Sharing Agreement between ANZ Royal Bank Cambodia, and IFC,

Investment Number 28471, April 1, 2011

3. World Bank. Cambodia Agribusiness Access to Finance Project, Aide Memoire of

First Implementation Support Mission, May 8-30, 2012.

4. Cambodia Agribusiness Access to Finance Project, Risk Sharing Framework

Agreement, between the Kingdom of Cambodia, IFC and IDA, February 11, 2011.

5. World Bank. Cambodia Agribusiness Access to Finance Project, Financing

Agreement (Grant No.H-634 and Credit No 4839), between the Kingdom of

Cambodia and IDA, February 11, 2011.

6. World Bank. Cambodia Agribusiness Access to Finance Project, Project Appraisal

Document, December 16, 2010