Proposal to National Multi-Donor Trust Fund: Proposal to National Multi-Donor Trust Fund: Sudan Micro-enterprise DevelopmentSudan Micro-enterprise Development

Government of National Unity:Government of National Unity:

Central Bank of SudanCentral Bank of SudanMinistry of Finance and National EconomyMinistry of Finance and National Economy

Ministry of InvestmentMinistry of Investment

August 2006August 2006

Strategic ObjectivesStrategic Objectives

The strategic or development objective to promote broad-based, The strategic or development objective to promote broad-based, inclusive growth. This will be achieved through the sustainable inclusive growth. This will be achieved through the sustainable growth of microenterprise in Sudan, including its profitability, asset growth of microenterprise in Sudan, including its profitability, asset growth, and formalization. growth, and formalization.

The project has four supporting objectives:The project has four supporting objectives:

– To alleviate policy impediments to formalization;To alleviate policy impediments to formalization;

– To catalyze the provision of microfinance on a commercially sustainable basis, To catalyze the provision of microfinance on a commercially sustainable basis,

– To increase transfer of skills to the small scale and informal private sector through To increase transfer of skills to the small scale and informal private sector through business development services and linkages to larger firmsbusiness development services and linkages to larger firms

– To create a public-private partnership for low-income housing provision. To create a public-private partnership for low-income housing provision.

Component 1: PolicyComponent 1: PolicyReducing Barriers to FormalizationReducing Barriers to Formalization

Business is the main way out of poverty. Business is the main way out of poverty. But informal sector is not registered, faces harassment, lacks access to finance and competes But informal sector is not registered, faces harassment, lacks access to finance and competes

for low-wage temporary work. Asset of the informal sector not eligible for secured financing.for low-wage temporary work. Asset of the informal sector not eligible for secured financing. Large and growing informal sector due to IDPs caught in a poverty trap.Large and growing informal sector due to IDPs caught in a poverty trap.

Source: Voices of the Poor, D. Narayanan, World Bank 2002

Informality is partially a result of excessive Informality is partially a result of excessive proceduresprocedures

Cor

rupt

ion

Procedures to Start a Business

ALB

DZA

ARG

ARM

AUS

AUT

AZE

BGD

BLR

BEL

BOL

BIH

BWA

BRA

BGRBFA

CMR

CAN CHL

CHN

COL

CRI

CIV

HRV

CZE

DNK

DOM

ECU

EGY

ETH

FIN

FRA

GEO

DEU

GHA

GRC

GTM

HND

HKG

HUNIND

IDNIRN

IRL

ISR

ITA

JAM

JPN

JOR

KAZ

KEN

KOR

KGZ

LVA

LBN

LTU

MDG

MWI

MYS

MLI

MEX

MDA

MNG

MAR

MOZ

NPL

NLD

NZL

NICNER

NGA

NOR

PAK

PAN

PER

PHL

POL

PRT

ROM

RUSSAU

SEN

SER

SGP

SVK

SVN

ZAF

ESP

LKA

SWE

CHE

SYR

TWA

TZA

THA

TUN

TUR

UGA

UKR

ARE

GBR

USA URY

UZB

VEN

VNM

YEM

ZMB

ZWE

Info

rmal

Em

ploy

men

t

Procedures to Start a Business

ALB

DZAARG

ARM

AUS

AUT

AZE

BGD

BLR

BEL

BEN

BOL

BIH

BWA

BRA

BGR

BFACMRCAN

CHL

CHN

COL

CRI

CIV

HRV

CZE

DNKDOMECU

EGY

ETH

FIN

FRA

GEO

DEUGHA

GRC

GTM

HND

HKGHUN

IND

IDN

IRN

IRL

ISR

ITAJAM

JPN

JOR

KAZ

KEN

KOR

KGZ

LVA

LBN

LTU

MDGMWI

MYS

MLI

MEX

MDA

MNG

MAR

MOZNPL

NLD

NZL

NIC

NER

NGA

NOR

PAK

PAN

PER

PHL

POLPRT

ROM

RUS

SAU

SEN

SERSGP

SVK

SVN

ZAFESP

LKA

SWE

CHE

SYR

TWA

TZA

THA

TUN

TUR UGA

UKR

ARE

GBR

USA

URY

UZB

VEN

VNM

YEM

ZMB

ZWE

More CorruptionA Larger Informal Sector

Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level.

Source: Doing Business 2004

Component 1 Will focus on removing Legal Component 1 Will focus on removing Legal and Policy Impediments to Formalizationand Policy Impediments to Formalization

Informal Economy StudyInformal Economy Study– A need to better understand informal sector. What are the barriers to A need to better understand informal sector. What are the barriers to

becoming formal? What are the sources of social capital and traditional legal becoming formal? What are the sources of social capital and traditional legal systems? What economic activities undertaken? Which can become viable systems? What economic activities undertaken? Which can become viable sources of growth? Sources of market information?sources of growth? Sources of market information?

Regulatory StreamliningRegulatory Streamlining– Building on FIAS and informal economy study, the component would finance Building on FIAS and informal economy study, the component would finance

legal and institutional reforms to reduce barriers to becoming formal.legal and institutional reforms to reduce barriers to becoming formal.

Asset registryAsset registry– The design of a database, community interface systems, community The design of a database, community interface systems, community

outreach in order to begin to register the business assets of economically-outreach in order to begin to register the business assets of economically-active poor to be security for loans.active poor to be security for loans.

Component 2: MicrofinanceComponent 2: Microfinance

Bank of Sudan has engineered recovery through FDI consolidationBank of Sudan has engineered recovery through FDI consolidation– Despite increasing deposit and credit growth, smaller firms still find it difficult to Despite increasing deposit and credit growth, smaller firms still find it difficult to

obtain credit, particularly medium termobtain credit, particularly medium term– But microfinance relatively under performing. Few banks able to achieve 10% But microfinance relatively under performing. Few banks able to achieve 10%

microfinance policy target.microfinance policy target.

Microfinance vision now drafted – to be presented September 25Microfinance vision now drafted – to be presented September 25 thth 20062006

Sudan Banking Sector Growth

-

200

400

600

800

1,000

1,200

2001 2002 2003 2004 2005

0%2%4%6%8%10%12%14%

Bank Deposits - SDDBillion

Credit to PrivateSector - SDD Billion

Capital Adequacy

Component 2: Led by Central Bank of SudanComponent 2: Led by Central Bank of SudanWill focus on establishment of sustainable Will focus on establishment of sustainable microfinancemicrofinance

Microfinance Policy AdvisorMicrofinance Policy Advisor– Establishment of Office of Microfinance Policy in Bank of SudanEstablishment of Office of Microfinance Policy in Bank of Sudan

Financial sector legislative specialistFinancial sector legislative specialist– To support enactment of key financial sector laws and the publication of new microfinance To support enactment of key financial sector laws and the publication of new microfinance

licensing procedures.licensing procedures.

Microfinance units of existing commercial banks (“Downscaling facility”)Microfinance units of existing commercial banks (“Downscaling facility”)– Technical assistance packages to existing, sufficiently capitalized commercial banks to help Technical assistance packages to existing, sufficiently capitalized commercial banks to help

develop microfinance units. Training for loan officers, organizational and strategic support, develop microfinance units. Training for loan officers, organizational and strategic support, assistance in product development, information systems design.assistance in product development, information systems design.

MFI Institution building program (“greenfield”)MFI Institution building program (“greenfield”)– Subordinated debt up to $800,000 for new microfinance institutions wishing to locate in Subordinated debt up to $800,000 for new microfinance institutions wishing to locate in

Sudan, meeting criteria of Office of Microfinance Policy. After establishment and successful Sudan, meeting criteria of Office of Microfinance Policy. After establishment and successful operation, debt convertible to equity.operation, debt convertible to equity.

Component 3 Led by Ministry of Investment Component 3 Led by Ministry of Investment will focus on SME Capacity and Linkageswill focus on SME Capacity and Linkages

FDI has grown 223% since 2002. Banking, energy, retail, food sectorFDI has grown 223% since 2002. Banking, energy, retail, food sector But insufficiently linked to local economy and small investorsBut insufficiently linked to local economy and small investors

Foreign Direct Investment in SudanUSD Million

-500

1,0001,5002,0002,500

2001 2002 2003 2004 2005

Source: BOS

Foreign Direct Investment as % of GDP

0%

1%

2%

3%

4%

5%

6%

7%

8%

2000 2001 2002 2003Source: WB Global Development Indicators 2005

SUDAN

KENYA

ETHIOPIA

VIETNAM

UGANDA

WORLD

S.S. AFRICA

Component 3 subcomponentsComponent 3 subcomponents

Entrepreneurship awareness buildingEntrepreneurship awareness building– To allow rural and urban poor to become aware of microenterprise opportunities.To allow rural and urban poor to become aware of microenterprise opportunities.

SME investment capacity in Ministry of InvestmentSME investment capacity in Ministry of Investment– Domestic investment facilitation program.Domestic investment facilitation program.– Monitoring capacity to understand impact of investment on domestic sector.Monitoring capacity to understand impact of investment on domestic sector.

Administrative investment reformsAdministrative investment reforms– Building on FIAS study, to build government capacity to serve domestic investors by Building on FIAS study, to build government capacity to serve domestic investors by

reducing adminstrative barriersreducing adminstrative barriers

Linkage Development FundLinkage Development Fund– Technical assistance facility to enable domestic firms to serve as suppliers to foreign Technical assistance facility to enable domestic firms to serve as suppliers to foreign

invested firms (linkages)invested firms (linkages)– Improve cost, quality and delivery terms with techical help of foreign company’s Improve cost, quality and delivery terms with techical help of foreign company’s

purchasing department/supply chain manager.purchasing department/supply chain manager.

Component 4 – to be undertaken in Phase Component 4 – to be undertaken in Phase 2 - Self-Help Housing Pilot2 - Self-Help Housing Pilot

The lack of assets of poor contributes to poverty trapThe lack of assets of poor contributes to poverty trap

Economically active poor to be targeted for emergence from Economically active poor to be targeted for emergence from povertypoverty

Home ownership is one of the key ways to build assets, which Home ownership is one of the key ways to build assets, which may then be used as collateral for a business.may then be used as collateral for a business.

Component 4: Self-Help Housing PilotComponent 4: Self-Help Housing Pilot

A public-private partnership to build housing assets of the poor, A public-private partnership to build housing assets of the poor, based on Botswana, Sri Lanka, Aceh and Mexican self-help housing.based on Botswana, Sri Lanka, Aceh and Mexican self-help housing.

Land plots contributed by state governmentLand plots contributed by state government

Project provides for a competitive process to provide packages of Project provides for a competitive process to provide packages of self-help materials that are provided to qualified families. self-help materials that are provided to qualified families. Qualifications include 20% down payment on cost of materials.Qualifications include 20% down payment on cost of materials.

Materials, design, and supervision.Materials, design, and supervision.

Labor contributed by community, with small payments from family.Labor contributed by community, with small payments from family.

Project may also provide a mortgage for 80% of cost of materials.Project may also provide a mortgage for 80% of cost of materials.

PSD Steering CommitteeCBOS, Ministry of Finance + all relevant Min/Agencies

Bank of SudanDr. Sabir Hassan, Governor

ProcurementMonitoring &Evaluation

Executing Agency

Project CoordinationUnit

Policy Guidance

Min FinanceBarriers

To Formalization

CBOS

Microfinance

Ministry of Investment

CapacityBuilding

ProjectMgmtUnits

Project management structureProject management structure

MTDF RequestMTDF Request

Component Phase 1 Phase 2 Total

1 Microenterprise Policy 800,000 2,400,000 3,200,000

2 Microfinance 2,800,000 2,950,000 5,750,000

3 Capacity Building 2,000,000 3,000,000 5,000,000

4 Self-Help Housing 200,000 1,400,000 1,600,000

5 Management, Monitoring and Evaluation

168,000 400,000 568,000

Total 5,968,000 10,150,000 16,118,000

Government ContributionGovernment Contribution

Component Phase 1 Phase 2 Total

1 Microenterprise Policy 800,000 2,400,000 3,200,000

2 Microfinance 650,000 2,650,000 3,300,000

3 Capacity Building 2,060,000 3,290,000 5,150,000

4 Self-Help Housing 0 2,000,000 2,000,000

5 Management, Monitoring and Evaluation

0 0 600,000

Unallocated 2,000,000 300,000

Total 5,510,000 10,640,000 16,150,000