Policies and Programmes

The Consultative Group to assist the Poorest (CGAP)

The Consultative Group to assist the Poorest (CGAP) was formally constituted on June 26-28, 1995. CGAP is a multi-donor effort to address poverty through a micro-finance program, with the objectives to: coordinate donor micro-finance programs, improve policy environment for micro-finance institutions, distill and increase learning of best practices, and use these lessons to deliver sustainable banking services to the poor. The program launch included a consultative forum that was attended by approximately 100 people, of whom half were practitioners, and the other half were donors. All participants provided recommendations on three key areas:

(i) A strategy for CGAP -- identification of ultimate clients, regional focus if any, eligibility criteria and performance standards for participating institutions;
(ii) Strategies for mainstreaming and dissemination on micro-finance within World Bank and other donor agencies, governments, and practitioners;
(iii) Recommendations for CGAP's core agenda -- what it should accomplish.
On June 27th-28th, 1995, the donors met to formally constitute CGAP. Members include Canada, France, The Netherlands, the United States, the African Development Bank, the Asian Development Bank, the International Fund for Agricultural Development, UN Capital Development Fund, UN Development Program, and the World Bank. Approximately US$200 million in programs and in cash were pledged by the member donors to CGAP. Mr. Ismail Serageldin, Vice-President of Environmentally Sustainable Development was elected as Chair of the CG. Dr. Muhammad Yunus of Grameen Bank was elected Chair of an 11-member Policy Advisory Group. The CGAP Secretariat, responsible for the administration of the program, will be housed in the Finance and Private Sector Development Vice-Presidency of the World Bank.
CGAP s next steps are to: (i) inventory, identify, and analyze the characteristics and quality of the donor programs pledged to CGAP for best practice learning and dissemination, (ii) develop eligibility criteria by which donor programs are included into CGAP portfolio, and by which participating institutions qualify for funding from the US$30 million grant facility, and (iii) set up systems for outreach and dissemination. The newly-created Secretariat is in the process of developing the Program s operational procedures for the screening, evaluation, appraisal and funding of micro-finance proposals. These procedures will be finalized over the next two months at which time applications for funding submitted via Member Donors will be considered by the Secretariat.
As stated above, one of CGAP s function is to disseminate information on micro-finance. CGAP will issue a newsletter on a regular basis with articles contributed by individuals and organizations in the field to inform people on latest events in micro-finance and about CGAP activities. A short note series on various technical issues will also be launched. A home-page will be established shortly on the World Wide Web where the CGAP newsletter and short notes will be posted. Contributions to the newsletter and short notes are welcome.
For further information on how to receive CGAP newsletters and other communications, please call (202) 473-9594 or fax (202) 522-3744 or send an EM to: CProject@Worldbank.org

A POLICY FRAMEWORK FOR
THE CONSULTATIVE GROUP TO ASSIST THE POOREST (CGAP)
- A MICRO-FINANCE PROGRAM--
This document establishes a policy framework for CGAP. It represents decisions made at the June 27-28, 1995 meeting in Washington, D.C., where the CGAP was formally created.

Background

At the International Conference on Actions to Reduce Global Hunger hosted by the World Bank on November 30 and December 1, 1993, the World Bank expressed a willingness to join with other donors in an effort to explore ways of systematically increasing the resources available to the very poor.
Following expressions of interest from a number of donors, a meeting of donors was held in Paris on June 29, 1994. A Donor Working Group of seven members was appointed which subsequently met in Paris on July 18, 1994 and again in Rome on August 30, 1994. Based on these meetings, it was proposed that a Consultative Group to Assist the Poorest (CGAP) -- a Micro-Finance Program be established.
On March 21, 1995, the Executive Directors of the World Bank approved the proposal to establish a Consultative Group to Assist the Poorest (CGAP) - A Micro-Finance Program. The CGAP will be anchored by a World Bank contribution of 30 percent (up to US$30 million) of program financing, from its Special Program budget. The US$70 million expected to be contributed by other donors (in cash or programming) will create a portfolio of approximately US$100 million.
A meeting was held in Paris on May 15 and 16, 1995 with representatives from 12 donor agencies to discuss the details on implementation. The first meeting to constitute the Consultative Group was held in Washington DC on June 26-28, 1995. A core group of donors came together to form the CG, while a number of potential donors participated in this first meeting as either members in waiting or observers. A list of the attendees is in the Attachment. Overview
Over the past decade, provision of micro-credit and savings services has proved to be an effective means of job creation and income generation among the very poor. Participation of the poor in credit and savings systems has been correlated positively with betterment of family welfare, including improved nutritional and educational status among children and lower birth rates among women. To broaden and deepen this success, CGAP was established to address the provision of assistance to the poorest, initially through a micro-finance program.
The CGAP will: (i) expand the level of resources reaching the poorest of the economically active poor, initially through channeling funds through sound micro-finance institutions that meet the eligibility criteria approved by the CG; (ii) improve donor coordination for systematic financing of such programs; and (iii) provide governments, donors and practitioners with a vehicle for structured learning and dissemination of best practices for delivering financial services to the very poor. The Ultimate Clients
The CGAP program is aimed at the poor who can benefit from improved access to financial and related services, with an emphasis on reaching the poorest of this group. The program is not a social safety net; it will focus on enabling very poor men and women to become progressively more productive, with the expectation that some participants would eventually move on to use formal banking services.
The Participating Institutions

The CGAP will not deliver services directly to the ultimate clients. Instead, it will provide grants and/or loans to legally registered institutions (PIs) that provide financial and related services to the poor, provided that these Pls meet the agreed upon eligibility criteria (proposed criteria in Annex I).
Objectives of the Micro-Finance Program

The objectives of CGAP are to:

support micro-finance institutions that deliver credit and/or savings services to the very poor on a financially sustainable basis or that are capable of becoming financially sustainable;
increase learning and dissemination of best practice for delivering financial services to the poor;
strengthen donor coordination;
help create a positive environment for micro- lending institutions;
help improve access of low-income groups to financial services by identifying institutional and policy deficiencies for remedial action;
help established providers of micro- finance assist others start such services elsewhere.

Strategy for Achieving the Objectives

CGAP will play a catalytic role in achieving these objectives through a three-pronged approach: (i) mainstreaming micro-finance best practice into donor policy and operational support; (ii) disseminating best practice to governments and PIs; and (iii) channeling funds to programs/institutions to help build sustainable specialized institutions and to broaden and deepen their reach to provide services to the very poor and to expand the frontiers of knowledge in this field.
Mainstreaming and Dissemination of Micro-finance Best Practice

A major contribution of the CGAP will be to channel lessons learned from the CGAP portfolio into all the Member Donors practices, including the World Bank. The Bank intends to apply the lessons learned from CGAP in further improving its work in this area.
World Bank

The World Bank will endeavor, as part of its policy dialogue with governments, to improve the overall macro-economic environment for micro-finance programs through:

instruments such as poverty assessments, private sector assessments, financial sector work, country economic memoranda, and other economic and sector work, to be more inclusive of micro-enterprise and micro-finance development related issues and recommendations;
advice on improving the legal and regulatory environment for micro-enterprises, focusing on: entry, growth and exit of small businesses, as well as opening up competition; and improving the legal environment for recovery of bad debt (property rights, collateral);
advice on financial sector policy reforms more conducive to sustainable micro-finance institutions such as: removal of ceilings on interest rates, removal of competing subsidized credit schemes, less restrictive banking laws to encourage new entrants, and prudential regulation and supervision to accommodate non-bank financial institutions, particularly those involved in savings mobilization and uncolateralized credit to individuals through solidarity groups

In addition to policy support, the World Bank will learn more about micro-finance best practices; and leverage direct assistance to micro-finance programs, by linking them with the broader financial systems in the countries of operation. The Bank will also seek to retain the focus on poverty and the needs of very poor groups in society.
CGAP will mainstream best practice within the World Bank through systematic dissemination of information on strengthening macro and micro linkages and integrating micro-finance issues into broader projects. The key vehicles for information dissemination will be: a CGAP newsletter on what works and best practices in the field; training sessions targeted to task managers and division chiefs, such as that conducted by the Private Sector Development Department (PSD) in March 1995, and on-going World Bank efforts under the Sustainable Banking with the Poor Initiative; participation of task managers on proposal appraisals and monitoring missions in their countries of operations, participation/involvement in broader fora, etc.
Donors, Governments and Practitioners

The CGAP Program will act as a clearing house on best practice information. It will actively distill lessons and disseminate information to: (i) the donor community, to increase donor coordination and increase and improve donor programming in this field; and (ii) governments, financial institutions, NGOs and other stake-holders to increase the overall knowledgebase of all actors in the field.
A clearing house function positions CGAP to contribute to the learning agenda in the field, on issues such as: linking micro-finance institutions into the financial system; new instruments and technologies for reducing transaction costs of micro-finance; forms of collateral; governance of non-bank financial intermediaries; new instruments such as leasing and equity; impact measurement methodologies; the relationship between micro-finance programs that benefit the very poor and the necessary conditions at a macro and sectoral level that enable them to function effectively; ways to integrate such information into the formulation of policy-level programs that address macro-level and broad sectoral issues; issues concerning the sustainability of micro-finance institutions; state-of-the-art practice in this area; prudential regulation and supervision issues; and others identified by the CG, the Policy Advisory Group (PAG) and the Secretariat. Answers to these questions will be sought by carrying out joint donor activities in the field of micro-finance, jointly monitoring and evaluating these activities, and synthesizing the lessons learned.
For the dissemination agenda, CGAP will develop promotional, informational and training materials. These materials will include brochures on CGAP, audio-visual materials on activities of the PIs and final clients, a database on PIs and experts by country, a newsletter, and training modules. These materials will be used in various dissemination activities, that include: country and/or regional level policy and operational oriented workshops for Governments, local and international NGOs, financial institutions, donors, and other players; `exposure trips and study tours for policy makers and practitioners to learn from each other; publications that are widely distributed to practitioners in developing countries, on-line news bulletins, etc.
Where possible, workshops will be linked with donors' work on micro-enterprise development in the respective countries. The CGAP will disseminate lessons learned both among developing countries and among CG members who would disseminate them in their own agencies. The CGAP will coordinate with existing donor coordination mechanisms such as the Donor Committees on Finance and on SME Development for dissemination activities.
Funding Micro-Finance Programs

The World Bank will make a cash contribution to CGAP of 30 percent (up to US$30 million) of total funds or eligible programs brought by CG members to the Program. The purpose will be to increase funding for eligible micro-finance institutions without substituting for other donor funds or private sector capital. These investments will leverage other available funds in order to increase the reach and capabilities of PIs.
Investments will be determined by the level of impact to be achieved in terms of program expansion, replicability and/or innovation; and where the learning agenda on the field can best be furthered. The spectrum of eligible financial intermediaries can be grouped in the categories as described below. CG members will need to decide on the balance to be given to each of these categories in the disbursement of CGAP resources.

international networks
in-country wholesalers
in-country retailers
start up activities supported by established providers of micro-finance

The CGAP could provide funds to international networks for local intermediaries that meet the eligibility criteria. International networks typically include NGOs with networks of local, usually legally independent, intermediaries of financial and non-financial services that reach the poor. Where possible the funds would be provided on a co-financing basis to cover activities over a 2 to 3 year period. The funds would have to be channeled by the international network to local intermediaries either in grants, equity or loans at commercial rates of interest. The use of twinning arrangements with local affiliates would be encouraged.
In-country wholesalers are local apex or second-tier institutions that could disperse CGAP funds to various local intermediaries that meet the eligibility criteria. As with the international networks, CGAP funds could be channeled to local retail institutions as grants, equity or loans.
Local retailers constitute a variety of micro-finance institutions and include NGOs, specialized banks, individual credit unions and cooperatives, and micro-finance projects. CGAP s role in financing local retail institutions could be to leverage other donor funds. One of the important objectives of financing local retail institutions will be the learning and sharing of information with a wider audience on internal control systems (accounting and MIS); credit and savings methodologies; marketing techniques, expansion strategy, replication, and other areas of innovation.
Start-up operations of new PIs supported by established practioners is an effective and efficient way of multiplying micro-finance programs for the very poor. A portion of CGAP funds could be channeled to fund such initiatives.
In dispensing its own funds, the World Bank will pay careful attention to regional coverage and regional cross-fertilization in terms of best practice in selecting its investments. In addition, it will ensure that at least 50 percent of the client base of the PIs it funds are women.
The objectives and terms of the CGAP investment will be agreed upon by the PI and CGAP, and specified in a Partnership Agreement (PA). CGAP resources will allow PIs to allocate more time to product and institutional development, as opposed to fundraising, and help them create linkages with the formal financial sector. PIs will be asked to participate in workshops and other activities where lessons on experience are shared with other practitioners and policy makers.
Use of Funds

The key operational mechanism for the CGAP micro-finance program will be to fund those proposals sponsored by the member donors of CGAP that comply with eligibility criteria established by the Consultative Group (CG). The Program will provide matching grants for eligible programs to: capitalize loan funds for on-lending; fund guarantee schemes that leverage funds from the formal financial sector; fund technical assistance provided by the PIs to the very poor where such training is integral to the finance program; and fund institutional development designed to assist PIs to scale up operations successfully. Funds will also be provided to institutions such as the Grameen Trust to assist start-up micro-finance institutions.
Governance and Structure of the CG

The intention is to establish as lean and efficient a structure as possible consistent with achieving the stated objectives of CGAP. Such a structure should have a high degree of transparency, capability to expand, independence in decision-making, and high technical and operational standards. The structure includes:

The Consultative Group (CG);
The Policy Advisory Group (PAG); and
The Secretariat
The Consultative Group (CG). The CG will be composed of:

the donors, including the World Bank that make a contribution to the facility in terms of cash or programs. These donors are referred to as the Member Donors (MD), and
the donors that would pool their resources with those from the World Bank and entrust the Bank with the management of these funds. These donors are referred to as Funding Partners (FP) .

A Chair will be elected from CG members and serve an initial one year term. The CG will convene annually or semi-annually, but ad-hoc meetings could be called at the discretion of the Chair. As host agency, the World Bank will coordinate the establishment of the CG, house the Secretariat and provide it with infrastructure support. The CG functions include:

establishing policies, approving business plans and budgets and reviewing performance on an annual basis;
establishing criteria, operating procedures and guidelines by which proposals from PIs and donors would be appraised, monitored and evaluated;
distilling and disseminating lessons on operational and policy issues in a systematic way; and
encouraging donor coordination in poverty oriented lending and micro-finance efforts to improve the enabling environment for the very poor.

Bilateral and multilateral organizations, private organizations/foundations, private individuals and governments are all eligible to join the CG, once they have: (a) paid the agreed upon annual contribution for the CGAP Secretariat's budget and (b) committed a minimum of US$2 million in eligible programs or funds.

MD Program Eligibility. Eligible programs are those that meet the eligibility criteria (annex 1). These programs could be new or ongoing. Proposals that are submitted for co-financing that meet the eligibility criteria also qualify as MD contributions. The donor s portion of the program will qualify as the contribution and not the total project amount. MD's portfolio contribution to the CG program would be managed by themselves.
FP contributions. Funds provided by FPs for CGAP investments will be managed by the Bank in separate Trust Accounts and are additional to Bank contributions. An agreement will be made between the FP and World Bank on modalities of use and disbursement of these funds.

The Policy Advisory Group (PAG)

The PAG is purely an advisory body. It has two main functions. One is to support and advise the CG and Secretariat on policy and technical issues, to advise on selection criteria and program evaluations, and assure that the best practical knowledge is available to the CG and Secretariat. Its other function is to enable individuals who represent implementing institutions to participate in the work of CGAP.
The PAG will be comprised of 11 distinguished experts in the field of micro-finance and poverty. The PAG will be largely representative of practitioners from developing countries. The membership of PAG will be renewed by 1/3 every year. Members will be asked to serve an initial one year term, with two-third renewed for a second year, and half of those will be asked to stay on for a third and final year. The PAG will be convened periodically and on an ad-hoc basis, and members could be called individually or collectively, as the case may require, to advise on specific policy and procedural issues, and to get their feedback on some of the Program s activities. The PAG is named by the CG and will advise the CG. It will primarily interact with the Secretariat but be responsible to the CG. The list of the PAG members is also in the Attachment. The Secretariat
The World Bank will be the host agency for the Secretariat of the CGAP program which will administer the funds provided by the World Bank and Funding Partners that are used for co-financing purposes, and monitor operations contributed to the Program by other donors or that are used by the Bank for self-standing operations which would be administered by the Bank. The funds provided by the World Bank and Funding Partners will be maintained in separate accounts to be administered by the Bank in accordance with established agreements between each partner and the Bank.
A small Secretariat will be established to manage the CGAP program. This Secretariat will include an IFAD staff member and a person with extensive experience in grassroots, micro-finance programming for the very poor. The Secretariat will:

Screen, evaluate and recommend proposals for funding;
Monitor and distill lessons from the programs in the CGAP portfolio;
Mainstream activities and lessons into World Bank operations; and
Disseminate lessons on best practice

Proposals for Funding. The Secretariat will receive proposals from PIs, sponsored by MDs of the CGAP, including possibly some from World Bank staff. The Secretariat will screen all proposals, evaluate some proposals if necessary, and recommend to the CGAP adoption of those screened/evaluated proposals that conform to the eligibility criteria adopted by the CG. The CG would then adopt the programs that would constitute the CGAP portfolio.
Each Donor will have their own investment procedures. For the World Bank, to allocate its own funds, the Bank would proceed through an internal review and approval by an Investment Committee according to the investment procedures outlined in Annex II. It is anticipated that a large number of operations will be co-financed. To the extent that it will be economical, appraisal, monitoring and evaluation of programs in CGAP s portfolio will be conducted on a joint basis. They should be conducted so as to impose minimum demands on the PIs. The procedures will be reviewed with the donors periodically, and specifically after the first year to fine tune them. The disbursement of CGAP funds would be governed by the ability of the PIs to absorb the funds cost-effectively and efficiently. That capacity would determine the rate of disbursement over the next several years.
Oversee Portfolio of Programs. The Secretariat will act as a clearing house for the coordination and collection of information on programs in the CGAP portfolio (including MD programs). The Secretariat will work closely with donor experts and consultants to extract lessons learnt and develop standards in the field of micro-finance. To facilitate the collection and distillation of information, a reporting format between MD programs and the Secretariat will have to be developed.
Mainstream Activities in Bank Operations. The Secretariat, with the support of the Finance and Private Sector Development Vice Presidency, will be responsible for ensuring mainstreaming and dissemination of lessons within the World Bank as described in para. 11-14. This was a major reason for locating the Secretariat within the World Bank.
Disseminate Lessons Learned on Best Practice. The Secretariat will work closely with the donors in fulfilling this task as described in para. 15-18, and will use, as much as possible, some of the resources and existing materials already available in this field.
In fulfilling its functions, the Secretariat will consult with the PAG as appropriate, and at its discretion, convene PIs and other experts to consult on the CGAP program s funding operations and best practice learning and dissemination. The Secretariat will report to the CG through its Chair. More generally, the Secretariat will receive advice from the PAG, donors, PIs and experts active in this field, to ensure that the procedures are flexible and efficient.
Participation of NGOs and Others

The CG meeting will be preceded by a one day consultative forum. PIs and experts will be invited to participate and exchange views with members of the CG. This approach guarantees interaction, promotes participation of all stakeholders and it creates a forum where the main concerns of those directly affected can be addressed.
Performance Criteria

The effects of CGAP will be measured directly through its investments and indirectly through the intended catalytic impact resulting from mainstreaming and dissemination. While quantitative indicators can be established to measure the impact of investments; more qualitative measures will be necessary to measure the catalytic impacts, since this is more difficult to measure. Sample indicators which will be reported on an annual basis include:

Reach: increase in reaching the very poor, by trying to increase the number of very poor people reached, and to reach poorer persons than those currently served by the PI s Program whenever possible.
Institutional Development: progression towards increased financial sustainability as measured by performance indicators established with PIs during the investment time span.
Mainstreaming: improvement in quality of assistance and greater frequency of micro-finance work in policy and lending programs; and increased linkages between NGOs and the financial sector.
Dissemination and Learning: number and quality of activities conducted as well as extent of outreach; and incorporation of the lessons learned into developing countries' poverty strategies and into the operations of the World Bank and participating donors.

Annex I

Eligibility Criteria for the Participating Institutions (PIs)

Although the bulk of funding is expected to go to eligible PIs in I DA countries, the Program would support eligible programs in non-IDA countries , particularly in those instances where unique learning opportunities exist.
A variety of financial institutions would be eligible for financing from the Micro-Finance Program, including NGOs, credit unions, cooperatives, and banks. Inclusion depends on their meeting established criteria, not on the ir ownership status. As such, eligible PIs may be public or private, although the majority to be funded by the Program are expected to be private. Funds approved for public agencies should not in any way substitute for other available sources of funds. In general, the objective would be to reach established institutional programs that are ready for expansion. Medium- and large-sized institution al programs are the most probable recipients, though a special effort would also be made to encourage well-run smaller programs to expand, and new institutions to get started where necessary.
Setting appropriate eligibility criteria for PIs and enforcing thes e criteria is the most effective means of helping to ensure that the Micro-Finance Program meets its objectives. At the most basic level, grants or loans would be provided to legally registered PIs that provide financial and related servi ces to the poor without preference with regard to religion, ethnicity or gender . Eligible programs would need to show that they are reaching large numbers o f poor people, are operating on a sustainable basis or are moving in that direction, and that they are in sound positions to use additional funds effectively. More specifically, they should:

have a proven track record of reaching large numbers of poor people;
operate in a business-like way that includes a high degree of internal efficiency, sound financial policies and high cost-recovery and repayment rates in their loan program;
meet the test of the market by being able to put up matching funds, preferably not mobilized from donor sources;
clearly demonstrate capacity to absorb additional funds and use them wel l;
present a viable business plan that shows movement toward greater reach, full cost-recovery and a strategy to move toward full financial sustainability; and
be a legally registered entity in countries of operation.

Replication of existing programs could be supported by CGAP through an established PI that would assume responsibility for assiting and monitoring start-up activities of new replicator programs. In addition, a small portion of funds would be used to directly finance innovative start-up programs that do not comply with the criteria stated above since by definition they would not have a proven performance record. In general, private organizations and donors with a strong local presence are better positioned to support such institutions. Special innovative activities that have particularly interesting lessons co uld also be brought to the attention of the CG for learning and dissemination purposes.
Key Terms and Conditions for Micro-Finance Program Projects/Programs

Matching Funds. Assistance should be provided on a matching basis to on the grounds that this approach functions as an automatic screening mechanism which helps ensure the integrity of the PIs, allows for leveraging funds, a nd subjects institutions to the scrutiny of the market. The grant amount would have to be determined on a case by case basis depending on th e stage of development of the PI, amount of internal savings mobilized and existence of other co-financing partners (donor or private). The grant cou ld range from 20 to 50 percent of total expenses of the PI, and should be phas ed out over a period of four to seven years.
Grants over Loans. There is a strong case to have the CGAP Micro-Finance Program generally disburse grants rather than loans, although this would have to be reviewed on a case by case basis. Participating Instituti ons typically need grants for capitalization, program expansion. and development of innovative approaches for reaching the poor on a sustainable basis. CGAP w ill monitor the use of funds to ensure that the intermediaries are achieving sc ale of operations and building systems to reach self-sufficiency. The discipli ne provided by a loan can as effectively be achieved through tranching disbursements as discussed below.
Tranched Disbursements. To help instill financial discipline and h elp ensure that program objectives are met, where the approved funds are in the form of grants (as will be the case with World Bank funds), these funds would be disbursed in tranches upon meeting the objectives agreed upon in the contra cts between the CG members and the PIs. It is critical that funds from the Micro-Finance Program not discourage or substitute for savings mobilization, or cover the cost of program inefficiencies.
Use of Funds. The types of assistance provided by the Micro-Financ e Program should be flexible to meet the needs of the PIs. Funds would go to PIs to: (i) capitalize loan funds for on-lending; (ii) fund guarantee schemes t hat leverage funds from the formal financial sector for the poor; (iii) fund technical assistance provided by the PIs to the very poor where such training is integral to the finance program; and (iv) fund institutional development designed to assist PIs to scale up operations successfully, (e.g., staff training and MIS installation), or develop new instruments and approaches. Funds would also be disbursed to institutions such as the Grameen Trust tha t assist start-up micro-finance institutions.
The Micro-Finance Program's operational guidelines should be flexible to accommodate local conditions on such matters as loan ceilings and credit amounts, eligible borrowers and activities. However, in general, the Progr am would require that financial PIs should on-lend funds at interest rates whi ch cover the PI's costs of efficiently providing this service. Technical assistance and other non-financial services to the poor can be partially subsidized. PIs providing both financial and non-financial services should account for them separately.
The objective of the Program is to reach the very poor without jeopardizing the financial viability of the institutions involved. As such, the Program could set flexible guidelines on average loan sizes, or stipulate that a certain percentage of the PI's overall loan portfolio consist of loans below a certain size. This could be an acceptable means of maintaining the focus on the poorest without tying intermediaries' hands.
Administration and Supervision. Administration of the Program should be lean and cost effective. Decisions on eligibility of PIs would be determined by the Secretariat in accordance with criteria set by the CG. Funding decisio ns and disbursements (except for World Bank and Funding Partner funds) would remain with the donors concerned. Supervision and monitoring of the use of funds at the local levels would be carried out by the cofinancing donors with the participation of the Secretariat, as appropriate for the Secretariat to fulfill its monitoring, evaluation and structured learning mandate. In fulfilling that mandate, the Secretariat may call upon individual consultants or organizati ons that specialize in this area.

Annex II

Investment Procedures of World Bank and FP Funds

Sources of investment proposals. Investment proposals will be sponsored by the member donors of CGAP, including proposals put forth by World Bank staff. Format of the proposal. The proposals have to be submitted using a standard form to reduce costs of screening. Information provided should include inflatio n adjusted balance sheets, three year profit and loss statements, as well as data on loan portfolio quality, lending technology, target group and history of the institution. The Secretariat will develop a brochure and conduct outreach and information campaigns on CGAP, PI eligibility and application procedures. Screening of proposals. The written proposals will go through an initial screening at the application phase where clearly ineligible proposals will be rejected by Secretariat staff. Where necessary additional information will be requested on the good proposals.
Appraisal/due diligence. While some of the institutions may be well known, other proposals may need to be appraised. The Secretariat will develop a standa rd appraisal checklist to verify eligibility, use and type of funds required, absorptive and expansion capacity of these institutions. Each donor, including the World Bank, will be responsible for managing their own appraisals. Conceivably, however, some proposals could be appraised by the Secretariat for the CG as a whole based on the CG s request. More proposals are expected t o fall out during appraisal.
In-house investment committee. To ensure transparency, the quality of investments and the Bank s discharge on its responsibility concerning the World Bank (and FP) funds investment decisions will be made twice a year by a Wor ld Bank investment committee. This committee would also help in the dissemination of information within the World Bank. The Secretariat will screen the investment recommendations to be approved by the investment committee. The investment committee could include the Chair of the Working Group on Financ e, legal counsel, a representative from Environmentally and Sustainable Development Vice Presidency (ESD), one representative from the International Finance Corporation (IFC), one representative from Human Resources Development and Operations Policy, one representative from Financial Policy and Risk Management, and a representative from the regions in which investments are being proposed. The Investment Committee will be chaired by the Vice-President for Finance and Private Sector Development.
Investment Agreements. The Secretariat, on behalf of the World Bank, will enter into partnership agreements (PA) with eligible PIs. These PAs will establish the objectives to be achieved with the CGAP funding, the indicators to meas ure results, and the overall relationship between CGAP and the PI in the fundin g period. This will ensure that World Bank funds are used in accordance with the CGAP criteria. These indicators will be designed to minimize interference in the operations of the PIs. Standard agreements will be developed during th e start-up period.
Monitoring and Supervision. Depending on the type of investment, funds will be disbursed in one or in several tranches. Institutions will be required to submit quarterly progress reports using a simple form while investments and the continued eligibility of the institution will be monitored (audited) on a yearly basis. Lessons learned will be distilled during these monitoring exercises . PIs will need to provide audited accounts documenting their utilization of resources received from the CGAP Fund.

Source:
Djenan Khayatt, Private Sector Development Department, The World Bank, dkhayatt@worldbank.org

Hari Srinivas - hsrinivas@gdrc.org
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