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Implementation Completion Report (ICR) Review - Enterprise Growth & Bank Modernization

1. Project Data:   
ICR Review Date Posted:
Project Name:
Enterprise Growth & Bank Modernization
Project Costs(US $M)
 338.0  260.7
L/C Number:
Loan/Credit (US $M)
 250.0  238.8
Sector Board:
Financial and Private Sector Development
Cofinancing (US $M)
 88.0  21.9
Board Approval Date
Closing Date
11/30/2009 12/31/2010
Central government administration (41%), Compulsory pension and unemployment insurance (36%), Banking (14%), Other industry (5%), Housing finance and real estate markets (4%)
State enterprise/bank restructuring and privatization (33% - P) Export development and competitiveness (17% - S) Other financial and private sector development (17% - S) Small and medium enterprise support (17% - S) Public expenditure financial management and procurement (16% - S)
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Melvin P. Vaz
Michael R. Lav Ismail Arslan IEGPS2

2. Project Objectives and Components:

a. Objectives:

    The objectives of the project as stated in the Project Appraisal Document (PAD pg 11) were to:
      • trigger employment generation through private sector enterprise growth and urgently needed reforms within the State Owned Enterprises (SOEs) - as part of a wider reform of rolling back state ownership and control within the economy; and
      • help Bangladesh implement its banking sector reform program aimed at achieving a competitive private banking system by a staged withdrawal through corporatization leading to a divestment of a substantial shareholding in Rupali, Agrani, and Janata, and to divestment of a minority shareholding in Sonali.

    The objectives of the project as stated in the Development Credit Agreement (DCA pg 15) were:
      • to trigger employment generation through private sector enterprise growth and modernization of the banking system; and
      • to promote urgently needed reforms within the SOEs and the NCBs.

    The discrepancy between the objectives in PAD and DCA is presentational, as both cover the same material, even though that material is grouped differently. The two PDOs in the PAD have been chosen as the basis for this evaluation because the PDO2 in the PAD is more detailed as compared to that in the DCA.

b. Were the project objectives/key associated outcome targets revised during implementation?

c. Components:

The project had a total of seven components:

    (1) Small Enterprise Development (appraisal: $10.0 million; actual: $9.9 million)
    The main focus of this component was to provide access to finance through the establishment of a Small Enterprise Fund (SEF) at the Bangladesh Bank which would serve as a refinancing facility where funds will be on-lent to SME focused banks to help scale up their small enterprise portfolio.

    (2) Refurbishment of some strategic remaining assets of loss making SOE's (appraisal: $20.0 million; actual: $8.4 million)

    This component was to finance the initial refurbishment costs associated with the conversion of assets of several large terminated SOEs into productive use to increase investment and employment creation over the short to medium term. At the time of appraisal, two sites had been identified (Adamjee Jute Mills and Chittangong Steel Mills) and two additional sites (Chittagong Chemical Complex and Khulna Newsprint Mill) had been proposed for inclusion.

    (3) Institutional strengthening (appraisal: $4.0 million; actual: $2.6 million)

This component was to finance capacity building within the Privatization Commission (PC), Board of
    Investment (BOI), Bangladesh Export Processing Zone Authority (BEPZA), and Bangladesh Small and Cottage Industries Corporation (BSCIC).
    (4) Support to Voluntary Retirement Scheme (VRS) (appraisal: $180.0 million; actual: $200.1 million)

    This component was to finance the VRS costs to the Government of a second tranche of SOE closures (the first tranche covered 28 SOE closures in 2001-02 supported by World Bank's Development Support Credit). These costs covered retrenchment costs of workers related to the closure or privatization of 95 enterprises over the period 2002-03 to 2007-08. The financing of the sub-component would include $75 million of co-financing from DFID, although actual financing by DFID was only $17.6 million.

    (5) Retraining and counseling services for retired staff of SOEs (appraisal: $0 million; actual: $0 million)

This component was to finance a social safety net program to support transitioning the retired workers into
    alternative jobs or self employment by retraining and counselling. This sub-component was funded by DFID for which $10 million had been earmarked.

    (6) Resolution of the problems of the Nationalized Commercial Banks (NCB's) (appraisal: $34.0 million; actual: $17.7 million)

    This component was to finance Government's initial reforms in the Nationalized Commercial Banks (NCBs). Activities under this sub-component include:
      • The privatization of Rupali Bank;
      • Hiring an external management team at Agrani Bank to contain losses;
      • Introduction of management experts at Sonali and Janata Banks to improve operational performance; and
      • Technical advisory support to the joint Ministry of Finance (MOF)/Bangladesh Bank (BB) working group established in July 2003 to monitor the restructuring process including preparation of resolution strategies and resolution plans for the four banks.

    The "end-game" for Rupali, Agrani, and Janata was to be a fundamental change in their existing governance arrangements through the implementation of the Resolution Plans - and their divestment in full or part over the medium term. In the case of Sonali, the "end-game" was to bring it to the point where a minority shareholding could be divested over the medium-term.

    (7) Public awareness, monitoring, evaluation, and tracking (appraisal: $2.0 million; actual: $0 million)

    This component was to finance the following activities: develop an improved information campaign to convince the public of the overall benefits of its ongoing reform efforts; and support monitoring and evaluation of the costs and benefits of the reform agenda (social tracking exercise, the impact of the retraining and counseling component).

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates

The total cost of the project was US$480 million at appraisal, of which US$142 million was financed by the Government of Bangladesh, US$250 million by a credit from IDA, and US$88 million by DFID. Actual costs were US$344.9 million, of which US$84.2 million was financed by the Government of Bangladesh, US$238.8 million by IDA, and US$21.9 million by DFID. The project was appraised on Jan18, 2004, approved on Jun-08-2004 and the loan became effective within one month after Board approval on Jul 19, 2004. The original closing date (Nov-30-2009) was extended by 1 year and 1 month to Dec 31,2010, to compensate for the initial delays and the institutional strengthening component.

3. Relevance of Objectives & Design:

a. Relevance of Objectives:
Substantial: The need for Increased employment based on private sector development is well-documented in wide-ranging ESW, as are the need for more FDI, a shrinking SOE sector to release resources to the private sector, and decreases in the roles of SOBs and commercialization/privatization of the NCBs. The most recent CAS (FY11-14) organized Bank assistance to achieve an "improved environment for private sector investment" under the "accelerated growth" pillar (page 21), focusing on the promotion of public-private partnerships and vibrant economic zones, expanded access to finance and land as well as skills development for a more competitive labor force, with which the objectives of this project are well aligned. The project's objectives of promoting reforms within the SOEs and bank modernization also clearly support these objectives.

The FY03 CASPR sets out the Banks assistance program for FY04-05, as the project was launched. Its first pillar, "Accelerating Private Sector-Led Growth" identifies improving the investment climate, including for FDI, establishing an efficient financial sector and addressing SCB issues, along with SOE reform designed importantly to reduce the SOE manufacturing sector, as key components of the assistance strategy. Concerning NCBs, however, the strategy of privatization proved to be less relevant, though this was recognized during EGBMP implementation and the NCB objective understandably changed to corporatization of the NCBs.

A wide range of economic and sector work has focussed on the need for the reforms supported by the EGBMP.

b. Relevance of Design:
Modest: Project design was unduly complex. The project involved a large number of disparate components (a total of 7) and too many implementing agencies (a total of 10) that led to delays during implementation. A simpler design was warranted, and consideration should have been given to proceeding with two separate projects, one focussed on enterprises and the other on financial sector and NCB reforms, instead of the weakly unified package which comprised EGBMP.

Project design was also deficient in the weak linkages between the institutional strengthening component and its outcome indicators (Increase in Foreign Direct Investment (FDI) and Increase in the Privatization/Liquidation of SOEs by PC) in the results frame work, because the purpose of the institutional strengthening component was to help the four institutions (PC, BOI, BEPZA, and BSCIC) develop their information systems, hardware, and human capacity and obtain relevant information which were not necessarily, within the project time frame, closely linked to the outcome indicators.

The baseline was not well established for a number of indicators against which to monitor and evaluate progress, so that they were less useful in indicating any needed mid-course corrections.

4. Achievement of Objectives (Efficacy) :

The overall rating for achievement of Development Objectives is substantial.

1. Employment generation through private sector enterprise growth and urgently needed reforms within the SOEs. While there were some shortfalls in implementation, measures most directly related to triggering employment generation were well implemented, so that, on balance, achievement against this objective merits a rating of substantial achievement.

A. Through private sector growth:
(i) Increases in FDI, promoted by institutional strengthening of BEZPA (which appears to have been particularly effective) BSCIC, and the BOI. FDI increased from US$284 million in FY2004 to US$961 million in 2010, an annual increase of US$134 million, greatly exceeding the target of US$40 million, although quite clearly not all of this increase can be attributed to the project.
(ii) financing of small enterprises through the Small Enterprise Development Fund (SEF) managed by BB which refinanced loans given by PFIs to Micro, Small, and Medium Scale Enterprises (MSMEs). 2,773 MSMEs received financing, against the target of 1500.

Substantial Achievement: Employment generated through FDI in the Export Processing Zones amounted to 32,418.and through the SEF, 30,704. Although there were no formal targets, this represents substantial achievement.

B. Through SOE reform, including reducing SOE losses:
(i) Refurbishment of some strategic remaining assets of loss-making SOEs: EPZs were created out of Adamjee Jute Mills and Chittagong Steel Mills which created a total of 589 industrial plots, generated investments worth US$243 million, and have already provided jobs for 23,000 people directly, and, when fully operational, are expected to provide employment for up to 120,000 people both directly and indirectly. Although two SOEs were dropped from the refurbishment program, on the basis of these employment numbers, IEG rates the achievement of this sub-objective as substantial.

(ii) Increased number of workers retiring with Voluntary Retirement Scheme (VRS) package. 57,000 workers participated in the VRS, against a target of 45,000 retired workers.

(iii) 46,000 retrenched SOE staff were counseled and 22,000 of them were provided retraining between 2005 and 2009, although all of this cannot be firmly attributed to this project.

(iv) Against a targeted 10 percent annual decrease in SOE losses for the 95 manufacturing SOEs, losses actually increased from the baseline of US$61 to US$75 million.

(v) The projected increase in the Privatization/Liquidation of SOEs by the Privatization Commission (PC) of 10 SOEs per year was not met; PC privatizations totaled 30 until 2008, after which government terminated the program in line with changed policies.

Modest Achievement: Refurbishment of SOEs, the voluntary retirement program, and retraining program were all substantially successfull in promoting private sector employment. However, both the SOE privatization program and the SOE loss reduction program were not successful.

2. Help Bangladesh implement its banking sector reform aimed at achieving a competitive banking system. Substantial Achievement.

A. During project implementation it became apparent that the original target of privatization could not be achieved, and the target was revised. The four NCBs were corporatized, brought under the Banking Companies Act, and, therefore, regulated by Bangladesh Bank. Performance based management contracts were entered for the three largest NCBs (Agrani, Janata, and Sonali).

B. The State-Owned Commercial Banks (SCBs) have improved their operations, although they are still weaker than private sector banks:
1. Non Performing Loans have decreased from 25 percent of the portfolio to 12 percent)
2. Capital Adequacy (adjusted capital to risk weighted assets) has increased from -0.84 percent to 8.92 percent.

C.The market share of the SCBs has decreased
1. Concerning lending, from 43 percent to 33 percent.
2. Concerning deposits, from 50 percent to 30 percent.

D. A "Public Awareness, Monitoring and Evaluation and Tracking" component of the project intended to better inform the public of the rationale for banking sector reform, was not implemented due to lack of government commitment.

5. Efficiency:

According to the ICR, since the project included serious social costs of retrenchment and was supplemented by increased employment through creation and expansion of new private sector enterprises, an overall economic internal rate of return (EIRR) could have been attempted at the design stage, but this was not done. However, concerning the Voluntary Retirement Scheme (VRS) program, the Economic and Financial Analysis in the PAD estimated the payback period of close to 3 years, although the ICR notes that this was a very limited financial analysis view without taking into consideration economic and/or social costs and benefits.

While not explicitly estimated, the benefits (in terms of employment generation) from the Small Enterprise Fund and SOE refurbishment component were probably substantial compared to costs. Also, there were large increases in FDI, related to modest project expenditures, but these are almost certainly due in considerable measure to other factors.

A more serious indication of shortcomings in efficiency for the earlier phases of the project was the transfer of the management of the Social Safety Net component to BRAC, although implementation thereafter appears to have improved.

Project implementation delays were related to the large number of implementing agencies (10) which led to slow disbursements.

Due to the above factors, efficiency is rated as Modest.

a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:

Rate Available?
Point Value
ICR estimate:

* Refers to percent of total project cost for which ERR/FRR was calculated

6. Outcome:

The project's objectives were substantially relevant. Increasing employment was and still is a high priority, and promoting private sector growth is key. FDI was and remains an important component of any private sector growth strategy. Reducing the profile of the SOEs (by encouraging retirement and retraining of workers, and privatizing SOEs) and their impact on the budget was an important objective. Refurbishing assets of closed SOEs created productive assets to support private sector employment was highly relevant. Improving financial sector capacity through reform of the NCBs and SOBs was an important priority to leave more space for privately owned banks which are more efficiently run. However, the project was only modestly relevant in design as it was overly complex and difficult to implement.

The project's objectives were substantially achieved. The project supported increases in employment in EPZs (with FDI increasing far in excess of targets) and through the SEF by some 63,000. Refurbishment of some strategic remaining assets of loss-making SOEs led to 23,000 new jobs with expectations of eventual employment creation (direct and indirect) of some 120,000. Winding down the SOE sector was facilitated through a voluntary retirement scheme and worker retraining programs. Balanced against these successes, were some shortfalls as SOE losses were not reduced, and the SOE Privatization Scheme was only partly successful but was then terminated. Concerning banking sector reforms, the NCBs were corporatized when privatization efforts failed, but they are now regulated by the BB and the three largest have performance based management contracts. The SCBs have improved operations, with a large decrease in NPLs and a large increase in capital adequacy, while their share of lending and deposits decreased, leaving more space for the private sector. However, a public awareness campaign was not implemented.

The project's efficiency was modest, as its many components were difficult to coordinate, and, for example, the management of the social safety component had to be transferred to BRAC.

The outcome is rated, on balance, moderately satisfactory because of the substantial relevance of objectives, modest relevance of design, substantial achievement of objectives, and modest efficiency.

a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:

This review agrees with the following risks to sustainability of the outcomes identified in the ICR (pg 18), because of concerns about:
    • Privatization and SOE losses: The SOE privatization program seems to have been abandoned by the Government, and there is no other initiative that would improve the governance and operations of SOEs, and more specifically the manufacturing SOEs. In addition, there have been pay increases given to SOE employees. The Privatization Commission has also lost its initial momentum, and in the past few years no SOEs have been handed over to the Privatization Commission (PC) for either closure or divestment. Going forward, it may be difficult to maintain the limited gains on SOE losses achieved from this project.
    • Banking reforms: The NCBs remain under government ownership, though now corporatized under the Banking Companies Act, which leaves them at greater risk for backsliding than if they had been privatized

An ameliorating factor in risk assessment concerns:
    • Employment: The gains achieved through FDI inflows, MSME credit, and refurbishment of SOE assets are likely to be maintained and not be reversed.

      a. Risk to Development Outcome Rating: Significant

8. Assessment of Bank Performance:

a. Quality at entry:
This review agrees with the ICR on the strengths and weaknesses in project design (pg 19) and also agrees with the rating of Moderately Unsatisfactory:

    Weaknesses in the design include:
    • The scope of the project was too broad and resulted in a series of design options that led to slower implementation and less coordination.
    • The linkage of the Institutional Support component (of BEZPA, for example) and the outcomes (increase in FDI, for example) was not clearly developed;
    • The SOE privatization initiative, including that of government banks and its components were poorly designed in terms of attaining the politically sensitive objectives of privatization of SOEs (including banks);
    • Targeted reduction of SOE losses were solely based on retrenchment of SOE employees; and
    • Lack of proper integration of environmental safeguards in the EPZ (in terms of ensuring compliance with environmental standards when land was made available through the EPZs) and SEF components (did not incorporate the screening of subprojects for possible adverse environmental impacts).

    Strengths in the design include:
    • Components (VRS and EPZs) were directed towards attaining the limited objective of increasing private sector investment and employment; and
    • The project design included safety net and communication components to address the after effects of a privatization program.

Quality-at-Entry Rating: Moderately Unsatisfactory

b. Quality of supervision:

There were issues with environmental aspects during supervision (refered to safeguards section in this form) due to which "Safeguards" was rated Unsatisfactory in the last ISR. The project was flagged for disbursement delays in June 2010. On the other hand, procurement arrangements were robust and managed well with no exceptions during the course of the project, and also the financial management systems were satisfactory with no major audit or reporting concerns. The implementing agencies appreciated Bank supervision in facilitating project implementation, particularly during the periods of political uncertainty, although there were concerns about the large number of reviews required by the Bank.
This review agrees with the ICR rating of Moderately Satisfactory for Quality of Supervision.

Quality of Supervision Rating: Moderately Satisfactory

Overall Bank Performance Rating: Moderately Unsatisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The commitment of the Government towards the project's objectives was strong during the design stage, but gradually weakened during the implementation phase due to political changes. The Government did not implement the public awareness and communications component. However, the PCU facilitated adequate government support so that the major components of the project could be implemented reasonably well.

Government Performance Rating: Moderately Satisfactory

b. Implementing Agency Performance:

Initially, there were 7 implementing agencies and the number increased to 10 after the NCBs (Sonali, Janata, and Agrani) were transformed into corporate entities and included as new implementing agencies of the project. There were implementation delays in the SOE reform process (leading to dropping of KNM and CCC units from being converted to EPZs) and VRS component (resulting in nonutilization of about $22 million). Since, there were implementation problems in the Social Safety Net component under the management of Ministry of Labor (MoL), this component was transferred to BRAC. The Technical and managerial capacity in executing agencies was adequate, but coordination and approval processes between agencies were highly cumbersome and time consuming (base on QALP assesment). However, the ICR notes that overall commitment and strong supervision provided by the PCU enabled completion of this project without major delays (pg 20).

Implementing Agency Performance Rating: Moderately Satisfactory

Overall Borrower Performance Rating: Moderately Satisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:

Not all of the objectives were not well linked to reforms or project components. and the complex nature of the project made M&E design a challenge.

b. M&E Implementation:

The PCU never set up the M&E system that had been envisaged, but M&E was adequate to maintain project implementation. .

a. M&E Utilization:

There were problems attributing the results of the performance indicators (VRS package, retraining or counselling and FDI) to the implementation of this project. Since, the M&E system which had been envisaged was never set up, M&E utilization was hampered.

M&E Quality Rating: Modest

11. Other Issues:

a. Safeguards:

Concerning the SEF component, there were no specific attempts made to mainstream environmental safeguards by the SMEs, though later on IFC started to work with the banks by training them on this matter.
Environmental aspects also received little attention during supervision, and no environmental impact assessment (EIA) was carried out to evaluate issues that could have arisen from the refurbishment of SOE assets.

b. Fiduciary Compliance:
There were no issues of fiduciary compliance.

c. Unintended Impacts (positive or negative):

SOE retrenchment is not politically popular in Bangladesh, Bank support for this led to some popular criticism despite appropriate mitigation programs such as retirement packages and retraining programs, However, it is difficult to see how the Bank could have addressed these issues more productively, given that the reforms were necessary.

d. Other:

12. Ratings:

IEG Review
Reason for Disagreement/Comments
Moderately Satisfactory
Moderately Satisfactory
Risk to Development Outcome:
Bank Performance:
Moderately Unsatisfactory
Moderately Unsatisfactory
Borrower Performance:
Moderately Satisfactory
Moderately Satisfactory
Lack of Government commitment due to political changes and too many implementing agencies led to delays in implementation.  
Quality of ICR:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:

The ICR review agrees with the lessons drawn in the ICR (pg 21):
    • It is very important to be aware of the political situation and changes in Government for planning Bank interventions.
    • It is important to recognize that SOEs reforms need to be handled carefully, and to an extent they can be accomplished without completely doing away with government ownership.
    • Reforms in state-owned banks require strong continued oversight by the regulator in order to retain the gains achieved.
    • It may be better to address banking SOEs through a separate engagement in the future rather than in tandem with manufacturing SOEs, as the issues are quite different and have different implications for the financial sector of the economy.
    • The project had a large number of disjoint components with many implementing agencies, which made implementation difficult and lacked an overarching common direction.

14. Assessment Recommended?


15. Comments on Quality of ICR:

The quality of evidence and analysis in the ICR was satisfactory. The ICR took into account the findings from the QALP assessment conducted by the Quality Assurance Group (QAG). However, there are several issues related to the presentation of project costs.
    • In the Table A1.1 (Annex 1 pg 23), the Appraisal Estimate column shows zero amount for each of the project components. Also, the costs reported under the Actual/Latest Estimate column are appraisal estimates and not actuals.
    • In the Table A1.2 (Annex 1 pg 23), the Actual/Latest Estimate column shows zero amount for all the sources of fund.
    • Total Borrower Cost at project closing is not available in the ICR.

      a. Quality of ICR Rating: Satisfactory

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