Date of Submission to Coordination Unit:

A. GENERAL INFORMATION

1. Activity Name

Promoting financial inclusion via mobile financial services in the Southern and Eastern Mediterranean countries - activities in Morocco

2. Requestor Information Name: Mr. Mohamed Boussaid Title: Minister of Economy and Finance

Organization and Address: Ministry of Economy and Finance, Mohammed V Avenue, Chellah, Rabat, Morocco

Telephone : 05 37 76 06 61 Email: ministre@finances.gov.ma

3. Recipient Entity Name: M. Abdellatif JOUAHRI Title: Gouverneur

Organization and Address: Bank Al-Maghrib

Telephone: +212 (0) 537 81 81 81 Email:

4. ISASC RepresentativeName: Timothy WINTERS Title: Policy Officer

Organization and Address: European Investment Bank, 98 boulevard Konrad Adenauer, L-2950 Luxembourg

Telephone: +352 4379 88331 Email: t.winters@eib.org

5. Type of Execution (check the applicable box)√ Type Endorsements Justification

Country-Execution Attach written endorsement from designated ISA

√ Joint Country/ISA-Execution

Attach written endorsement from designated ISA

Due to its regional dimension and approach, which includes two other countries in addition to Morocco, the need for an ISA to execute in coordination with the national authorities is essential. EIB will carry out procurement and financial management. It will also help to coordinate between the three targeted countries to ensure sharing of progress and expertise. The country will be responsible for local coordination and monitoring and evaluation, through the project management team within the Central Bank. The country also directly executes the workshop component. To ensure country ownership of all components of the project, the ISA execution will be closely coordinated with the country activities.

ISA-Execution for Country Attach written endorsement from designated ISA

November 6, 2013

ISA-Execution for Parliaments

Attach written endorsements from designated Ministry and ISA

6. Geographic FocusIndividual country (name of country): Morocco

√ Regional or multiple countries (list countries):

This request focuses on Morocco.

This request is part of an approach which has a regional scope in the Middle East and North Africa (MENA) region; as such the Transition Fund will also receive requests to finance related activities in Jordan and Egypt.

The regional aspect of this project is found particularly in the potential for information sharing and common capacity building activities across the region. Although the countries are all at different stages in developing responses to the challenges of promoting and regulating the provision of mobile financial services, the needs-based approach taken in each country proposal provides ample scope for regional sharing of results and best practices in different areas of the mobile finance field. More specifically, the studies to be carried out under some of the proposals are likely to be of use for other countries, and could form the basis for dissemination and collaboration events (workshops, conferences) as well as ad hoc sharing. It is expected that one aspect of this regional sharing would be implemented in the context of an umbrella project for which a Union for the Mediterranean label is under consideration, and which would provide a framework for future initiatives to promote other aspects of mobile financial services in the region.

7. Amount Requested (USD) Amount Requested for direct Project Activities: (Morocco activities)(of which Amount Requested for direct ISA-Executed Project Activities):

635,000 USD600,000 USD

Amount Requested for ISA Indirect Costs1: 42,000 USDTotal Amount Requested: 677,000 USD

8. Expected Project Start, Closing and Final Disbursement DatesStart Date: 1st January 2014 Closing

Date:30th September 2014

End Disbursement Date:

31st January 2015

9. Pillar(s) to which Activity RespondsPillar Primary

(One only)

Secondary

(All that apply)

Pillar Primary(One only)

Secondary(All that apply)

Investing in Sustainable Growth. This could include such topics as innovation and technology policy, enhancing the business environment (including for small and medium-sized enterprises as well as for local and foreign investment promotion), competition policy, private sector development strategies, access to finance,

√ Enhancing Economic Governance. This could include areas such as transparency, anti-corruption and accountability policies, asset recovery, public financial management and oversight, public sector audit and evaluation, integrity, procurement reform, regulatory quality and administrative simplification, investor and consumer protection,

√

1 ISA indirect costs are for grant preparation, administration, management (implementation support/supervision) including staff time, travel, consultant costs, etc.

addressing urban congestion and energy intensity.

access to economic data and information, management of environmental and social impacts, capacity building for local government and decentralization, support for the Open Government Partnership, creation of new and innovative government agencies related to new transitional reforms, reform of public service delivery in the social and infrastructure sectors, and sound banking systems.

Inclusive Development and Job Creation. This could include support of policies for integrating lagging regions, skills and labor market policies, increasing youth employability, enhancing female labor force participation, integrating people with disabilities, vocational training, pension reform, improving job conditions and regulations, financial inclusion, promoting equitable fiscal policies and social safety net reform.

√

Competitiveness and Integration. This could include such topics as logistics, behind-the-border regulatory convergence, trade strategy and negotiations, planning and facilitation of cross-border infrastructure, and promoting and facilitating infrastructure projects, particularly in the areas of urban infrastructure, transport, trade facilitation and private sector development.

√

B. STRATEGIC CONTEXT

10. Country and Sector Issues

Country OverviewMorocco has been on a steady path of economic recovery since the stagnation of the 1990s, with sound macroeconomic management and sustained growth in non-agricultural sectors. The economy proved relatively resilient in the face of the recent global economic slowdown. However, in 2012, the fragility of the Moroccan economy was exposed under the pressures from sluggish external demand, high prices of imported commodities, and lower agricultural output, combined with significant domestic economic rigidities. The situation of public finances also worsened in 2011 and 2012 as the government increased spending and borrowing both for social programs and subsidies following the Arab Spring and also to mitigate the impact of the global crisis. Consequently, the budget deficit widened to 7.6 percent of GDP in 2012, compared to an already high deficit of 6.9 percent of GDP in 2011. This higher overall investment has improved the employment rate, with the number of jobless shrinking to 9 percent in 2012.

In the current political and economic environment, inclusive growth and job creation by the private sector dominate the policy debates. With the government increasingly financially constrained, there are high expectations that SMEs and micro-enterprises can contribute more via private sector job creation in Morocco. The World Bank’s 2011 financial sector flagship report showed that access to finance is a key constraint in areas and income levels underserved by conventional banks, such as the informal sector.

Mobile financial services in support of financial inclusionBAM is highly aware of the importance of solving the problem of the lack of access to financial services in Morocco. The relationship between development in the finance sector and a country’s economic development has been empirically proven in a number of studies that show a high correlation and causality between increases in the rate of financial deepening and increases in GDP per capita. Poor access to finance may be a factor contributing to the slow growth of per capita incomes and the limited supply of employment and housing for Morocco’s young and growing populations.

The ‘Mobile financial services in Mediterranean Partner Countries’ study published by the EIB2 in 2012 shows that mobile financial services – in particular, business models based on prepaid electronic payments systems and cellular technology – can help improve access to financial services by addressing the questions of high costs of financial services, the scarce banking density, as well as the inappropriate risk methodologies and the inadequate regulatory framework of the existing system. In 2011, only 39% of Morocco’s population older than 15 had an account at a formal financial institution, while penetration of mobile telephone services stood at 114% (figures from World Bank and Morocco’s telecom regulator, ANRT). This combination of high mobile penetration and low access to financial services means that there is a clear opportunity for transformational mobile financial services in Morocco.

Both the Central Bank and the Moroccan Ministry of the Economy and Finance have identified financial inclusion as one of their primary policy goals, setting the objective of access to banking at 66% of the population of Morocco by 2014. In order to achieve this ambitious financial inclusion goal, the authorities have made significant efforts both to adapt the regulatory environment and to promote banking initiatives.

Physical access to financial services in Morocco is low not only compared to developed nations but also in regional terms. To solve the problem of low physical access to financial services in Morocco, banking law enables banks to outsource financial services through partnerships with commercial institutions (Intermediaire en Opérations de Banques (IOB)). However, agent regulation hampers the use of mobile network operators’ (MNOs)

2 See http://www.eib.org/attachments/country/femip_study_mobile_financial_services_en.pdf

networks as agents, since agents need to be either an S.A. or S.A.R.L. and have a direct contract with the bank, whereas not all individual stores in the network have the appropriate status and even those which do are faced with the burden of signing two contracts, one with the operator and one with the bank. Meanwhile, the very dense existing network of remittances services could be used for the deployment of mobile financial services.

In terms of credit information infrastructure, the Central Bank of Morocco is pioneering an effective information sharing model. Morocco’s system, if the competition issue is resolved by promoting new competitors to offer these services, would allow existing and potential actors in mobile financial services to access relevant information. Information, coming from both financial and non-financial operators, should include both banked and non-banked customers. This is an important aspect of financial inclusion, as by including all categories of consumer and types of operator, individuals have a greater chance of developing a credit history to be used for future financial activities.

Some of the country's leading banks, including Banque Centrale Populaire (BCP), Attijariwafa Bank and Al Barid Bank, have already launched initiatives and service offerings using prepaid platforms to offer low cost financial service offerings targeted to low income customers. BAM has also authorized a new player, leading payment services provider M2M, to create an acceptance network as an alternative to the existing bank-owned network run by CMI in order to increase competition and card usage among the unbanked.

Remittances services are a key component of the service offering that leading retail banks have designed for low income customers and these can also benefit from innovation via mobile services. Remittances received in Morocco are very important in macroeconomic terms due to their balance of payments impact, economic impact for low income population and funding importance for the Moroccan Banking system. Remittances operators have the electronic platform and the network for cash in/cash out purposes, both of which are key elements for mobile financial services operators. All three of the most important players in the remittances market in Morocco are banks, with approximately 30% market share each, each having a large network serving remittances receivers: BCP (including BCP’s network of almost 1000 branches and, since January 2012, also FBPMC’s network of ~300 branches); AttijariWafa (mostly through Wafa Cash with 1550 outlets); and Al Barid Bank (through La Poste Network with 2000 branches).

Overall, in Morocco, it seems that bank-centric business models for deployment of mobile financial services are more likely to succeed than operator led business models. This is because banks and the post office (Al Barid Bank) are seen as the most legitimate actors to offer mobile banking services, while mobile operators have less credibility. On the other hand, in the context of the changes in the banking law regarding e-money issuance (assistance was given by the EIB, the WB and AFI to develop this new law based on international best practices), microfinance organizations could become relevant players in the mobile financial services market in Morocco by partnering with operators holding e-money licenses in order to enhance their value proposition and credibility. Indeed, Morocco is the regional leader in terms of the development of its micro-credit industry. However, due to the crisis that microcredit associations faced in 2008, they are currently focused on increasing efficiency and decreasing delinquency ratios. The use of mobile financial payments could assist them in this dual aim by improving the efficiency of disbursements and reimbursements of micro-loans, while decreasing delinquency ratios due to the enhanced credit controls which are inherent to the use of electronic means of payment (such as credit and behavioral scorings).

11. Alignment with Transition Fund Objective

The objective of the Transition Fund as provided in the Operations Manual is, “to improve the lives of citizens in

transition countries, and to support the transformation currently underway in several countries in the region (the “Transition Countries”) by providing grants for technical cooperation to strengthen governance and public institutions, and foster sustainable and inclusive economic growth by advancing country-led policy and institutional reforms.” Access to quality financial services - including means of payments, savings, credit, insurance and money transfer systems - is crucial for low-income households to smooth consumption, manage risks, invest productively, and respond to financial shocks. Morocco has made important strides in promoting access to finance. Supporting the Central Bank of Morocco (BAM) in its effort to expand financial inclusion by developing regulations based on best practices to allow new payment service providers to offer innovative retail payment services such as mobile money is clearly in line with this overall objective of the Transition Fund (as well as specifically with the pillar on improved governance).

In addition to this alignment with the general objective of the Transition Fund, this project is aligned with each of its pillars. First, it is aligned with investing in sustainable growth since innovative retail payment solutions such as mobile money directly relate to topics such as innovation and technology policy, enhancing the business environment, competition policy, private sector development strategies, and in particular access to finance. Second, the promotion of innovative retail payment solutions such as mobile money promotes inclusive development and job creation by increasing financial inclusion. Third, this project enhances economic governance by improving public financial management and the oversight capacity of the Central Bank, and creating a sound and reinforced banking system. Fourth and last, the promotion of innovative retail payment solutions such as mobile money enhances competitiveness and integration since it facilitates trade and private sector development for the informal economy by supporting the provision of reliable payment and financial services.

12. Alignment with Country’s National Strategy

BAM estimates that, in April 2012, 52% of the population of Morocco had access to one or more financial services, an increase of almost 18% since 2010, mostly due to the inclusion of the accounts of the newly created postal bank (Al Barid Bank) formerly La Poste Financial Services Unit. (Figures from the World Bank give a lower starting point of 39% of the population being having access to banking services in 2011). The Central Bank and the Ministry of Finance have identified financial inclusion as one of their policy priorities, setting the objective of providing access to banking services to 66% of the population of Morocco by 2014. Indeed, the importance of financial inclusion for Morocco’s financial regulator is highlighted by the CGAP in its “Financial Access 2010 Middle East and North Africa Factsheet”, which states that BAM is one of the financial regulators in the region with a stronger mandate to promote financial inclusion, having already produced a financial inclusion strategy document. In terms of consumer protection, the CGAP states that BAM is the financial regulator that implements the strongest enforcement mechanisms in the MENA region in terms of fair treatment, disclosure and recourse mechanisms. BAM wishes to maintain and further improve on this record via the present project.

In order to achieve the objectives set in their financial inclusion strategy document (see the BAM’s ‘Plan Stratégique 2013-2015’)3, the financial authorities of Morocco have already made significant efforts to adapt both the regulatory environment and promotion of banking initiatives. Examples of these efforts are: the creation of Al Barid Bank (formerly La Poste Services Financiers), which now has a particular mission to address low income customers; the change in the regulatory context of the microfinance sector, currently before Parliament; and the current banking law changes allowing institutions providing payment services to issue e-money (expected to be approved by mid-2014). Additionally, BAM has made substantial efforts to raise awareness within the banking

3 http://www.bkam.ma/wps/wcm/connect/resources/file/eb7c6c4f37bf1c9/PS2013-2015.pdf?MOD=AJPERES&attachment=true

sector of the need to promote service offers specially dedicated to the unbanked segment.

As part of its actions in favor of mobile payments, BAM has already drafted amendments to Loi N°34-03 Relative aux Etablissements de Crédit et Organismes Assimilés. The new regulations will allow nonbanks licensed as payment service providers to collect funds from the public in exchange for electronic value. This is possible because the regulations expressly exclude from the definition of ‘deposits’ funds received in exchange for electronic value. Payment Service Provider (PSP) regulation requires PSPs to demonstrate (i) adequate financial, human and technical resources and (ii) adequate experience and honesty of management and funders. BAM is considering whether to require that PSPs engage only in payment services – thereby necessitating in many cases the creation of a dedicated subsidiary. BAM wishes to continue to build on these actions by working on further changes to the regulatory framework, which is the primary objective of this operation.

C. PROJECT DESCRIPTION

13. Project Objective

The overall objective of the project is to promote the development of innovative retail payment solutions such as mobile financial services which will support expanded access to finance across Morocco.

This objective will be achieved through a comprehensive package of technical assistance and capacity building aimed at supporting the new regulatory framework of payment service providers that BAM is implementing and that was described in the previous section.

Specifically, the current project aims at helping the Central Bank of Morocco develop regulations that will allow new payment service providers to implement alternative business models based on mobile financial services/mobile money in order to promote financial inclusion and private sector growth. When the project is completed, BAM will have robust and sustainable regulations, which are ready to be implemented, and also a useful reference guide of international best practice, which could also be shared with other countries in this regional initiative. BAM has explained that there are currently service providers which wish to develop mobile financial service offerings but which are reticent to do so until the regulatory framework is defined. This fact highlights the urgent need for this project and also demonstrates the direct impact which this TA operation can have on the provision of mobile financial services in Morocco.

14. Project ComponentsDespite the efforts of BAM as outlined above, Morocco continues to face an important challenge in terms of access to finance that jeopardizes the country’s economic development and equality. The specific assistance requested by BAM includes, first, an international review of the regulatory framework for mobile financial services in countries considered to be examples of best practices; and second, based on this international review, assistance with producing the required regulations to be implemented for the promotion of electronic payments.

Component 1 – Capacity building for BAM via an international review of the regulatory framework for mobile financial services in a selection of countries considered relevant and/or international best practices (USD 400,000 – ISA executed)

In order to ensure that the regulations it defines are sufficiently strong to ensure safe functioning of mobile financial services within the wider financial system whilst also being sufficiently flexible not to stifle the development of innovative new products, the BAM wishes to learn from the experiences of other countries. This is the reason for carrying out an extensive study into best practices in a selection of other countries known to have interesting experiences in implementing mobile financial services and associated legislation.

The preliminary suggested list of countries, to be confirmed in collaboration with the selected experts once the project is approved, is:

in Latin America: 1) Mexico and 2) Brazil; in Africa: 3) Kenya and 4) Nigeria in Asia: 5) the Philippines; and in Europe, 6) Belgium, 7) France, 8) Portugal and 9) the United Kingdom.

This component will include technical assistance via an international benchmarking study and a program of capacity building for the improvement of the regulatory and supervisory powers of BAM, and will cover at least the following activities:

1.1 Benchmarking of international regulators in relation to:o Registration of providers of payment services;o The reporting and financial monitoring of providers of payment services;o Accounting and prudential rules.

This subcomponent will include a detailed review of the retail payments systems and electronic money issuance rules in each country. In particular each country study will include at least the following:

1.1.1 Review of the regulation of payment systems Regulatory definition of a “payment” Regulatory definition of a “payment service provider” and “money transferors”

o Status of money transferors (such as Western Union and MoneyGram) and whether or not they are considered as payment service providers

o Types of entities that may provide money transfer serviceso Types of entities that are expressly prohibited from providing payment serviceso Status of government institutions (such as the postal service) permitted to provide money transfer

services Regulation of payment services businesses specifically regulated as such

o Body responsible for regulation/supervision of payment service businesseso Are payment service providers subject to registration, licensing and/or supervision? If so, are

there categories of payment service providers subject to different levels of licensing, registration or supervision?

o Requirements (in particular, prudential requirements such as minimum capital and liquidity) to operate as a payment service provider

o Maximum time allowed before the beneficiary must receive the payment Review of national policy concerning the establishment of retail payment systems

o Differences between policy regarding wholesale payments and retail payments Entities responsible for the supervision of retail payments systems, especially the role of the central bank Procedures for obtaining the license or authorization for financial and non-financial institutions aiming to

provide payment services

Empowerment of financial regulators to:o Require and/or enforce the interoperability of retail paymentso Require and/or enforce antitrust legislationo Intervene on the pricing of payment serviceso Act on issues related to consumer protection

1.1.2 Regulation of e-money/prepaid schemes Detailed review of issuance of e-money/prepaid mechanisms Analysis of the regulation, if any, that governs e-money

o Regulatory requirementso Agency responsible for policy making and enforcemento Supervision of e-money schemeso Risks and policy issues associated with these schemes

Regulatory definition of e-money and e-money issuerso Types of institutions that can issue e-moneyo Main issuers of e-moneyo Can nonbanks issue e-money? If so, under what conditions?

Is e-money issuance subject to regulation as a banking activity? Specific regulation on prepaid cards or other prepaid schemes that are not subject to regulation as a

banking activityo Review of such schemeso Balance limits or other limitations on this type of serviceo Other requirements such as reporting, registering or prudential requirements (e.g. minimum

capital, liquidity) for e-money issuance Policy regarding nonbanks issuing e-money and taking low-value deposits Illegally functioning e-money schemes in operation Responses/policies for regulating loss of funds by consumers as a result of a prepaid/e-money scheme

(legal or illegal schemes)

1.2 Review of technical supervision of providers of payment services including best practices in managing fraud and security standards.

This subcomponent will include a detailed review per country of electronic finance/e-commerce security standards, data management/privacy regulation and how regulators deal with mobile money specific risks. In particular, the study of each country will include at least the following review:

1.2.1 Electronic finance/commerce security standardso Regulation that governs e-commerce and e-security (including e-signatures) and regulation

requirementso Role of agency responsible for policymaking and enforcemento Controls for ensuring adequate integrity, security and confidentiality of electronic signatureso Conditions under which electronic signatures can have binding legal effect in lieu of physical

signatures

1.2.2 Data management/privacy regulation:

o Regulation, if any, that governs rights to the sharing, use and storage of financial information regarding consumers (collectively “data privacy regulation”) by banks, mobile network operators

and other commercial organizationso Institution responsible for policymaking and enforcemento Effect that data privacy regulation has on the ability of financial service providers or mobile

telephone operators to transfer information relating to their clients to domestic and/or foreign third parties.

1.2.3 Dealing with mobile money potential frauds whether they are originated via transactions, channel or internally, including but not limited to:

o Use of phone calls or SMS to gather personal details such as account numbers, PINs or personal identification details

o Customers fraudulently persuaded to send fundso Payroll fraudo Customer requests to reverse transactions that were in fact successfulo Sending fake SMS to make customers believe a transaction was successful, often accompanied

by a reversal requesto Agents splitting cash-in transactions in order to earn multiple commissions (applies only to tiered

commission structure)o False transactions: Agents transferring customer funds to personal accounto Registration Fraud: Creation of accounts for false, invalid or duplicated customers for the purpose

of obtaining extra registration commissionso Internal fraud: Employees colluding for unfair personal financial gaino Identity theft: Employees accessing and exploiting customer information without authorization.

1.3 Best practices of international regulators in relation to the regulation of the network of agents Type of institutions that can appoint/use agents Type of institutions that can serve as agents (retailers, financial institutions, post office, individuals, etc.)

a. requirements (such as lack of criminal record, etc.)b. is any entity or type of entity expressly prohibited from acting as a financial services agent?

Services which may be carried out by agents, for example:a. accept or disburse cashb. transfer funds electronicallyc. make payments to utilities or third partiesd. conduct Know Your Customer/CDD procedurese. is there any financial service they are expressly prohibited from providing?

Agency/outsourcing relationship requirements and prior authorizations from regulatory bodiesa. authorization processb. how is this process different for nonbanks appointing agents?

Operational requirements (such as equipment specifications, transactional limits, security measures) that the regulation and the institutions require of agents to perform any given service

a. does the regulation require transactions by agents to be settled within a specified timeframe?b. other limitations/conditions (such as accounting, auditing, security standards) imposed on agents

Limitations/conditions imposed on banks and nonbanks in the appointment of agents Inspection of agents, including what body and what is the inspection process, if any? Legal liability of the bank/nonbank to the customer who uses agents. What if the agent acts outside the

scope of the agreement with the bank/nonbank? Legal liability of agents to the customer

Data privacy and bank secrecy regulation applicable to agents Transparency regulation applicable to agents Price transparency: Are agents required to post or otherwise disclose information (such as fee structure,

banking ombudsperson telephone number or the bank’s customer service telephone number)? Are agents required to disclose their agent status to bank customers? If so, how? Evaluation of the impact of current agent regulation to expand access to financial services Evaluation of limitations/conditions imposed by the regulation on the use by banks of smaller independent

distributors as agents Number of entities wishing to appoint agents to use or provide financial services but not allowed Number of entities wishing to act as agents but not allowed

1.4 Solutions adopted by regulators with regard to the implementation of payment switches. How many and what type (public or private) of switches are in operation; if multiple switches exist, how

are payments divided between them How do countries ensure broad and equal access to payment switching for all types of payment service

providers (banks, non-banks, etc.) How is interoperability ensured What authorization mechanisms are required for different types of switch; which authority provides this

authorization and oversight

Obtaining sufficient, high-quality data and other types of information is at the heart of this review exercise. A wide range of information sources should be used, including the information available in the broader payment systems community and also other sources. It will be crucial that the experts selected to carry out this study should be able to access information from all appropriate sources, including within the central banks of the selected countries. The support of the EIB will be important for this.

A carefully designed strategy for the communication and dissemination of the Diagnosis Report should be developed to provide useful feedback to the various stakeholders, including but not limited to the Central Bank. Furthermore, it is hoped that, once completed, this international benchmarking exercise could be shared by Morocco with other countries in the region in order to further support the development of mobile payments services in these other countries. One potential beneficiary of such sharing could be Tunisia, as this information would be a natural development of the country’s proposed mobile financial services program. Part of this dissemination would be the workshop outlined in Component 3, below.

This component will be ISA-executed in close coordination with the country.

Component 2: Accompaniment for the BAM in drafting new regulations for the provision of electronic retail payments (USD 220,000 – joint ISA and country executed)

The benchmarking exercise of Component 1 should be designed so as to enable a clear understanding of the issues and areas of improvements required for achieving the stated public policy goals. In Component 2 of the exercise, BAM requests an accompaniment for their own experts in implementing the findings of Component 1 through the preparation of the relevant regulations.

This accompaniment phase would begin with a presentation of the results of Component 1, highlighting how the necessary steps required for implementing retail payments reforms have been successfully achieved in the countries benchmarked and outlining the key aspects necessary for BAM to produce regulations which meet the following three core goals with respect to retail payment system development:

Affordability and ease of access to payment instruments and services.

Availability of an efficient infrastructure to process electronic payment instruments. Availability of a socially optimal mix of payment instruments.

The regulations suggested in this component should also be coherent with the guidelines for developing a coherent retail payments strategy presented by the World Bank in 2012.

During the period while BAM will be drafting the regulations, the technical assistance would be available to provide support and guidance. After initial drafting, the technical assistance would review the proposed regulations to ensure that the relevant international benchmarks had been taken into consideration and that the final product was suitable for the Moroccan situation, providing a sufficient framework without unduly stifling creativity and innovation in the market.

This component will be ISA-executed in close coordination with the country.

Component 3: Knowledge sharing workshop (USD 35,000, country executed)

In support of the regional dimension of this program, each country will organize a workshop to share experience and feedback from the activities it has carried out under the program. This is valuable because each country has requested assistance with different aspects of their mobile financial services and financial inclusion programs. By sharing this knowledge among the central banks and financial sectors of the three countries of this program, and potentially with other interested parties and countries, the impact of the program will be heightened. In the case of the study for BAM, the broad scope of the international study could be of particular interest to other countries.

This component will be executed by the country.

Component 4: Project Management, Coordination, Monitoring and Evaluation (USD 40,000 – country-executed)

BAM will house a Project Management Team for activities associated with project coordination, including interfacing with the consultant team and implementing a comprehensive monitoring and evaluation (M&E) system. The Project Management Team will be located at the Central Bank of Morocco.

This component will be country-executed in close coordination with the ISA

15. Key Indicators Linked to Objectives

The indicators directly linked to this TA operation are the ‘intermediate results’ while the ones linked to the PDO are long term indicators which aim to track payments systems reform in order to measure the transformational impact of the proposed project in Morocco.

There will be four intermediate results indicators: Intermediate Result One: Report detailing international review of the regulatory framework for mobile

financial services in countries considered to be best practices; to be completed six months after commencement of the operations.

Intermediate Result Two: Regulations to accompany the new legislation should be ready and agreed by both BAM and the Ministry of the Economy and Finance. The consultant will also submit a report on the assistance offered in this component to the EIB.

Intermediate Result Three: A workshop to share the results of the study will have been organized and a report provided to the EIB.

Intermediate Result Four: A report detailing the functioning of the project management team will be shared with the EIB.

Indicators linked to the PDO:The drafting of new regulations based on international best practice is expected to have a direct impact on the provision of mobile financial services, and hence on financial inclusion, by responding to the stated needs of industry players for a clear regulatory framework under which to develop new services. These indicators aim to track mobile financial services promotion and in general retail payments system reform. The progress made needs to be assessed periodically against the vision and objectives established earlier on. The monitoring and evaluation framework considers metrics such as those presented here to assess progress on retail payments and mobile financial services development. The performance of the project will be assessed against the following indicators that will also serve as project milestones.

Access metrics: This would include metrics like number of accounts per 1000 adults, number of credit and debit cards per capita, proportion of Internet banking and mobile banking customers. This set of metrics helps in assessing the penetration of payment services.

Per capita cashless transactions: This is the number of cashless transactions both inter-institution and intra-institution over a year in relation to the population of the country.

Infrastructure metrics: This would include metrics like agents, ATMs and POS terminals per 1000 inhabitants. To get a more accurate assessment, metrics for specific geographic areas could also be considered.

Transactions per acceptance infrastructure: This is the number of transactions per ATM, POS, agent, mobile or any other acceptance infrastructure over a period of time. This serves to measure the level of interoperability and usage of infrastructure.

Cost of using service: For example, the fees for deposit and withdrawal of a representative amount at a representative frequency across types of institutions, channels and accounts or the cost (for the sender and for the receiver) of making a domestic remittance between parties maintaining accounts in two different institutions using the available payment mechanisms and channels.

D. IMPLEMENTATION

16. Partnership Arrangements (if applicable)

The Central Bank of Morocco (BAM) will jointly implement the project with the European Investment Bank (EIB). Components 1 and 2 will be EIB executed, while Components 3 and 4 are country executed. Within BAM both the ‘Direction des Opérations Monétaires et des changes’ and the ‘Direction de la Supervision Bancaire’ will be fully involved. Within the EIB, both the Economics department and the Policy and Business Development unit will be involved. The Ministry of the Economy and Finance should be invited to contribute to the drafting of the terms of reference for the study.

Stakeholders including industry players should be involved from the early stages. The project (especially component II) will therefore be augmented by the participation of a broad based ad-hoc local advisory committee comprising the Ministry of Economy and Finance, the Telecommunications Regulator (ANRT), and representatives of the financial sector, payment service providers, the microfinance sector, remittances operators, mobile operators and potentially other key stakeholders in order to provide input to the project throughout its lifetime. This committee will be created prior to the commencement of operations, under the leadership of BAM.

17. Coordination with Country-led Mechanism/Donor Implemented Activities

The project will be implemented in coordination with complementary projects to take advantage of synergies between different donor-funded activities. Consultations with a number of donors active in mobile financial services and retail payments infrastructure have demonstrated that this project has strong potential complementarities with ongoing and planned activities. The EU Commission, KFW, CPSS, IFC, CGAP, GSMA MMU, World Bank, FOMIN (IADB) and AFI have all been analyzing mobile money initiatives in the region and

elsewhere. The fact that the Central Bank has been closely involved in creating this request for assistance means that this proposal has been designed to fill specific gaps in the regulatory framework, rather than duplicating on-going work.

In the case of Morocco, coordination with KFW funded assistance commissioned by the Microfinance Refinancing Fund JAIDA to analyze the feasibility of mobile money in Morocco will allow BAM to learn more about the operations and the risks of implementing branchless banking and mobile financial services. The links between the Transition Fund-sponsored project on Microfinance, led by the World Bank, will also be investigated to ensure that potential linkages are explored.The Local Capital Markets Needs Assessment, which takes place in the framework of the Deauville partnership under the lead of EBRD and AMF (with the participation of the EIB) is also of relevance. The idea is to identify shortcomings in the functioning of local capital markets in the Deauville Partnership countries and to come up with measures to be implemented by governments to reach improvements as well as to identify possible actions to be taken by IFIs and to coordinate possible IFI involvement.

Overall, the EIB will act as a facilitator to ensure that the implementation team is able to coordinate with relevant on-going programs and initiatives led by other IFIs. In addition, the Moroccan Ministry of Finance, which has already been consulted during the creation of this proposal, will be requested to perform this function to ensure that synergies are sought with other country-led activities which the Ministry deems to be of relevance.

On a regional level, the involvement of the Union for the Mediterranean via the UfM label will be sought in order to promote regional partnerships and the sharing of best practice among the countries participating in this program.

18. Institutional and Implementation Arrangements

The project will be executed under the joint responsibility of the EIB and BAM. Specifically, the EIB will procure the services of consultants for the implementation of Components 1 and 2. The BAM will be responsible for the implementation of Components 3 and 4. The EIB exercises oversight functions including approval of the different sections of the studies, in consultation with BAM.

Project Team: Component 1 will be implemented by a team of international consultants, selected by and reporting to the EIB; Component 2 will be carried out by members of this team of international consultants supporting BAM’s in-house team.

Ad-hoc Advisory Committee: An ad-hoc advisory committee comprising representatives from the Ministry of Economy and Finance, the telecom regulator (ANRT), the financial sector, payment service providers, the microfinance sector, remittances operators, mobile operators and potentially other key stakeholders will meet at least twice to provide guidance to the project throughout its lifetime.

Coordination Activities: The EIB will coordinate with other IFIs throughout the implementation of the project as appropriate. Steps will be taken to identify synergies with other projects and to leverage linkages between them.

19. Monitoring and Evaluation of Results

The results framework for the project is centered around the PDO and specifies PDO level and intermediate indicators which will be monitored to evaluate project performance towards the objectives (see M&E framework below). Primary responsibility for results monitoring will be given to the Central Bank of Morocco (BAM), which will monitor progress both during and after implementation and will present an M&E report to the EIB on an annual basis, including after having completed the project. The EIB will be responsible for the monitoring of intermediate indicators.

E. PROJECT BUDGETING AND FINANCING

20. Project Financing (including ISA Direct Costs4)Cost by Component Transition

Fund(USD)

Country Co-

Financing (USD)5

Other Co-Financing

(USD)

Total(USD)

Component 1: Capacity building for BAM via an international review of the regulatory framework for mobile financial services in a selection of countries considered relevant and/or international best practices (ISA-executed)

400,000 400,000

Component 2: Accompaniment for the BAM in drafting new regulations for the provision of electronic retail payments (ISA-executed)

200,000 20,000 220,000

Component 3: Feedback workshop (TC-executed) 35,000 35,000Component 4: Project Management, Coordination, Monitoring and Evaluation (TC-executed)

40,000 40,000

Total Project Cost 635,000 60,000 695,000

21. Budget Breakdown of Indirect Costs Requested (USD) Description Amount (USD)

For grant preparation, administration and implementation support:

Staff time and travel 42,000

Total Indirect Costs 42,000

4 ISA direct costs are those costs related to the ISA’s direct provision of technical assistance within the project.5 Costs related to the provision of BAM staff will be the in kind contribution of BAM and as a result do not require financing

F. Results Framework and Monitoring

Project Development Objective (PDO): This project’s objective is to promote access to finance through the promotion of mobile financial services. This objective will be achieved through a comprehensive package of capacity building and technical assistance aimed at supporting the new regulatory framework of payment service providers that BAM is implementing.

PDO Level Results Indicators*

Unit of Measure

Baseline

Cumulative Target Values**Frequen

cy

Data Source/

Methodology

Responsibility for Data Collection

Description (indicator definition

etc.)YR 1 YR 2 YR3 YR 4 YR5

Indicator One: Access metrics

Number 31/12/ 2013

5% 10% 15% 20% 25% Annual Reporting to BAM

BAM Number of active accounts per 1000 adults

Indicator Two: Infrastructure metrics

Number 31/12/ 2013

3% 6% 9% 12% 15% Annual Reporting to BAM

BAM Agents, ATMs and POS terminals per 1000 inhabitants

Indicator Three: Transactions per acceptance infrastructure

Number 31/12/ 2013

5% 10% 15% 20% 25% Annual Reporting to BAM

BAM Number of transactions per ATM, POS, agent, mobile or any other acceptance infrastructure over a period of time

Indicator Four: Cost reduction to maintain specific payment product accounts by institution type

Number 31/12/ 2013

0% 5% 10% 15% 20% Annual Reporting to BAM

BAM Cost for the consumer to maintain specific payment

product accounts under a given use scenario

INTERMEDIATE RESULTS

Intermediate Result (Component One):

Intermediate Result indicator One: Capacity building for BAM based on an international review of the regulatory framework for mobile financial services in countries considered to be best practices

Report n/a 1 n/a n/a n/a n/a Once, six months after project start

Reporting to the EIB

EIB, BAM Report detailing international review of the regulatory framework for mobile financial services in countries considered to be best practices; to be completed six months after commencement of the operations.

Intermediate Result (Component Two):

Intermediate Result indicator Two: Regulations to accompany the new legislation should be ready and agreed by both BAM and the Ministry of the Economy and Finance.

Report n/a 1 n/a n/a n/a n/a Once, at project completion

Progress report to the EIB

EIB, BAM The consultant will submit a report on the assistance offered in this component to the EIB.

Intermediate Result (Component Three):

Intermediate Result indicator Three: Workshop for information sharing will be completed

Report n/a 1 n/a n/a n/a n/a Once, at project completion

A workshop to share the results of the study will

have been organized and a report provided to the EIB.

Intermediate Result (Component Four):

Intermediate Result indicator Four: Project management team will have been operating for the project

Report n/a 2 n/a n/a n/a n/a Twice, once halfway through project implementation and once at completion

A report detailing the activites of the CBJ in managing and implementing the project will be shared with the EIB.