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Implementation Completion Report (ICR) Review - Micro, Small And Medium Enterprise Project


  
1. Project Data:   
ICR Review Date Posted:
05/28/2013   
Country:
Nigeria
PROJ ID:
P083082
Appraisal
Actual
Project Name:
Micro, Small And Medium Enterprise Project
Project Costs(US $M)
 60  N/A
L/C Number:
C3839
Loan/Credit (US $M)
 32  33.7
Sector Board:
Cofinancing (US $M)
 28  N/A
Cofinanciers:
IFC
Board Approval Date
  12/16/2003
 
 
Closing Date
06/30/2009 12/31/2011
Sector(s):
Micro- and SME finance (60%), Other industry (15%), Animal production (13%), Central government administration (7%), Law and justice (5%)
Theme(s):
Micro Small and Medium Enterprise support (25% - P) Regulation and competition policy (25% - P) Legal institutions for a market economy (24% - P) Other financial and private sector development (13% - S) Judicial and other dispute resolution mechanisms (13% - S)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Stefano Migliorisi
Rene I. Vandendries Ismail Arslan IEGPS2

2. Project Objectives and Components:

a. Objectives:


    The project objective in the Project Appraisal Document (PAD p. 2 ) was to “increase the performance and employment levels of Micro, Small and Medium Enterprises (MSMEs) in selected non-oil industry sub-sectors and in three targeted states of the country.” The project development objective (PDO) in the Development Credit Agreement (DCA p. 18) used essentially the same definition but referred to "participating states." The PAD (p. 32) also explained that “performance” meant “increased value added” of the MSMEs supported through the project, and that the three States were Lagos, Kaduna and Abia. The definition of MSME used (see PAD p. 15) was any enterprise with a maximum of 300 employees and an asset base of up to Naira 200 million (equivalent to over US$ 1.4 million at project approval).
    This ICR Review uses the following PDO: “to increase value added and employment of companies with a maximum of 300 employees and Naira 200 million of assets operating outside the oil sector in the States of Lagos, Kaduna and Abia.”

b. Were the project objectives/key associated outcome targets revised during implementation?
No

c. Components:

The project had five components:

Component 1: Access to Finance (cost at appraisal US$33 million, IDA: US$10 million). This component aimed to improve access to financial services available to MSMEs by using grants to support the creation or strengthening the capacity of micro-finance institutions and banks serving the MSME segment. The component envisaged support for the following activities: i) establishment of local commercially viable, regulated, microfinance companies; ii) technical skills transfer programs that incorporate new systems and lending methodologies to support commercial banks to expand their loan portfolio to MSMEs; iii) support for the establishment of private credit bureaus over an initial set-up period until a bureau establishes a revenue flow from its services; and iv) specialized technical assistance to selected firms providing long-term leasing services.

Component 2: Business Development Services (cost at appraisal US$16 million, IDA: US$12 million). This component intended to develop the market for business development services (BDS) by supporting qualifying intermediaries via grants and technical assistance to respond to unmet MSME demand for BDS focusing on the three target States (i.e.,Lagos, Kaduna and Abia). Two types of intervention were funded under this component: (i) Industry Supply-Chain Development; and (ii) capacity building of BDS providers for core products that were in excess demand by MSMEs in the three states, determined based on request for funding proposals sent to a BDS Fund.

Component 3: Investment Climate (cost at appraisal US$5.8 million, IDA: US$5.1 million). This component was intended to support the Government of Nigeria in: (i) reforming the business registration process, including upgrading and decentralizing the information systems of the Corporate Affairs Commission (CAC) and facilitating access to CAC services by local MSMEs; (ii) improving Commercial Dispute Resolution in Nigeria; (iii) enhancing the existing leasing framework by providing technical assistance for developing the laws and regulations together with a training program to ensure full understanding by relevant stakeholders; (iv) developing and implementing the required legal reforms for the establishment of credit bureaus; and (v) introducing a new secured transaction system including the development of laws and regulations necessary for an integrated registration covering various forms of moveable collateral.

Component 4: Public-Private Sector Partnership Development (cost at appraisal US$1.1 million, IDA: US$1 million). Resources were allocated to fund learning events (study tours, training, conferences) and reports to facilitate dialogue between the public and private sector, and thus support reforms for MSME development. Key beneficiary institutions under this component were the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) and the Nigerian Investment Promotion Commission (NIPC). SMEDAN would take the lead on a dialogue with business associations, private sector and government stakeholders with a view to preparing MSME competitiveness reports on an annual basis utilizing the cost of doing business surveys and other evaluations generated by the project and research undertaken by SMEDAN itself.

Component 5: Project Management, Monitoring and Evaluation (cost at appraisal US$2.5 million, IDA: US$2.3 million). The component financed the execution, reporting, review (semi-annual and mid-term) and monitoring of project components and independent evaluations of selected issues, particularly through case studies. Provisions were also made for equipment and operational costs and other financial, audit, training and consultant assignments as required and laid out in the approved annual procurement plan.

In addition to the above, US$1.6 million from IDA were unallocated.

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

Cost
Total project costs at appraisal were US$60 million. The costing of the project was split by component. The ICR did not provide information on actual project costs, only on actual disbursements of the IDA credit. A small share of the project costs (2.7%, although it represented 5% of the IDA credit) was unallocated. The over-runs on Component 5 (see ICR p. 17) resulted from the original five year contract for the project managing firm being extended by three years and adjusted for inflation in seven contract amendments. Additional services outside project management (e.g., secured lending, fixing IT issues on business registration databases) were also provided under this component.

Financing

    • An IDA loan of US$32 million (XDR 22.3 million) did fund 53% of project costs.
    • US$ 33.7 million (XDR 21.8 million) were disbursed before project closing. The amount of disbursements greater than the US$ dollar equivalent at project appraisal was due to the appreciation of the XDR.
    • The Borrower had agreed to provide US$1.9 million.
    • IFC and the Nigerian private sector were expected to fund the balance (US$26.1 million). There is no information in the ICR on the actual amount provided by the Nigerian private sector. According to the ICR (p. 16), IFC had agreed to invest US$1.5 million and ended up committing US$10 million.

At appraisal, IFC had identified and, in some cases was already supporting, several private sector projects in Nigeria related to MSME development. The IDA team had estimated at appraisal that project funds could benefit companies or organizations that were or could receive IFC investment or financial support. The ICR provides an estimate of IFC’s contribution: AB Microfinance Bank (US$4.23 million, of which US$3.2 in the form of debt and US$1.03 million in the form of equity), Accion Microfinance Bank (US$1.89 million as equity), Microcred Microfinance Bank (US$ 3.7 million, of which US$2 million as debt, US$1 million as equity, and US$0.7 million as advisory services), and the CRC Credit Bureau Ltd (US$ 0.24 million as advisory services).

Borrower Contribution
The original project costs included U$1.9 million by the Government of Nigeria, although the PAD did not clarify the relative contributions of central and local governments. There is no precise information in the ICR on the actual amount provided by the Borrower, but the ICR noted the counterpart funding from the government was not made available regularly. This led to an amendment to the DCA in July 2007 increasing the Bank’s contribution to 100 percent for all categories (the ICR refers to 2005, but the documents in the World Bank’s archives show an amendment to procurement rules in 2006, and disbursement percentages in 2007).

Dates
Approved by the Bank’s Board of Directors on December 16, 2003, the project became effective on December 13, 2004 against a planned date of June 15, 2004. A mid-term review was carried out in May 2008, almost 20 months later than planned. The project closing date was extended three times due to implementation delays, from June 30, 2009 to June 30, 2010, then to June 20, 2011, and finally to December 31, 2011, when it eventually closed.
The Development Credit Agreement was amended to change procurement rules (July 2006), amend disbursement percentages of eligible categories (July 2007), and extend the project’s closing date. However, there was no formal restructuring of project activities or objectives, even though there were significant reallocations of credit amounts among components.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:

The relevance of project objectives is rated as substantial.

According to a recently completed World Bank Study Financing SMEs in Nigeria, 96 percent of firms in the manufacturing sector are SMEs, and while they account for 70 percent of employment they contribute only 1 percent of GDP confirming the dependency of the country on extractive industries.

The Government’s Strategy (Vision 2020), covering the period 2009-2020 has eight areas of immediate policy focus including “fostering private sector powered non-oil growth to build the foundation for economic diversification”. The strategy’s objective is to achieve a structural transformation from a mono-product to a diversified, industrialized economy, through deliberate policy measures including an accelerated pace of privatization of public enterprises and improving the ease of doing business in Nigeria.

The Bank’s Country Partnership Strategy for the period 2010-2013 identified maintaining non-oil growth as key for poverty reduction and one of its three main themes, and called for targeted interventions to promote private sector involvement.

However, a recent IEG Nigeria Country Assistance Evaluation for the period 1998-2007 found that the Bank’s activities under its second pillar (creating a basis for sustainable non-oil growth) were moderately unsatisfactory. The evaluation (p. 15) found that the Bank lacked “a coherent strategy for bringing together institutions, policies, and investment programs”, and should have focused more on improving power and transport infrastructure, the two most relevant obstacles highlighted by every survey of Nigerian businesses. This lack of strategic coherence explains the ICRR’s rating of substantial for relevance of objectives in contrast to the ICR’s rating of high.

b. Relevance of Design:

The relevance of project design is rated as substantial.

The project’s causal chain was consistent with its stated objectives. The project was designed to increase the capacity of providers of financial and non-financial services to MSMEs and reduce selected investment climate barriers leading to increased employment, capital investment, and total factor productivity. This would allow firms to increase their value added contributing to GDP growth.

The project tried to address key constraints to MSME in a holistic manner, in line with the IDA-IFC framework paper of 2003. Limited access to finance by MSMEs was addressed through support for the establishment of specialized microfinance institutions, combining IDA technical support for operational and capacity building with IFC’s investment in one or more microfinance institutions. Demand driven access to business development services was aimed at the development of a market for BDS that were relevant for MSMEs, addressing constraints concerning know how and development of supply chains. Investment climate reforms focused, inter alia, on registration and commercial dispute resolution which would reduce the administrative burden and operational risks for MSMEs.
Project design correctly identified poor infrastructure and macro-economic uncertainty as the two major risks affecting project performance.


4. Achievement of Objectives (Efficacy) :

The efficacy of the PDO - to increase value added and employment of companies with less than 300 employees and Naira 200 million of assets operating outside the oil sector in the States of Lagos, Kaduna and Abia – is rated as substantial.

The ICR measured the key PDO indicator in terms of higher sales and increased employment in companies that had received financial or non-financial assistance from the project. This is clearly not what the project objective was, as increased sales do not necessarily lead to greater value added. In addition, there was some success in determining a counter-factual for part of the impact of one component, by comparing the performance of MSMEs with or without support from the project.

Two impact assessments were commissioned to gauge the direct impact on project beneficiaries of the two largest components - Access to Finance and Business Development Services. The assessments primarily focused on determining the impact that loans and business development services had on beneficiary MSMEs’ sales and employment levels.

Sales were used instead of value added (i.e., sales revenues minus purchase of inputs), as the latter is complicated to calculate due to the fact that MSMEs do not follow standard accounting practices. The impact assessments were limited to these two components as they originally accounted for two thirds of the IDA credit. Even if the components eventually amounted to 47% of disbursements, they still represented the majority of credit funds, net of implementation costs.

The two independent impact assessment surveys on business development services (BDS) and access to finance (ATF) components showed that MSMEs which benefitted from project supported BDS increased employment levels by 41.7% (from a mean of 5.8 workers to 8.3 workers) and expanded average monthly sales by 84.4% (from about N243,840.58 to N449,270.4) in the observed period. Sales of MSMEs which obtained loans from project supported MFI providers increased by 44% (by NGN 197,385) compared to pre-intervention time. While the surveys were conducted during the project (in 2008 and 2009), a significant portion of planned grants supporting access to finance and BDS agenda had already been utilized.

It is however difficult to attribute the increase to first component “Access to Finance”. The impact assessment addressed this issue by “directly asking respondents about the extent to which the changes in sales were caused by obtaining the loan, confirming that obtaining a loan had an effect on sales.” This approach is methodologically weak as it is based on the beneficiaries’ perceptions. A better alternative would have been to include in the sample companies that were supported and companies that had not been supported by the scheme, thus comparing the relative effect of the program on growth of sales and employment.

The impact assessment of the BDS component did instead follow a stronger methodology. Impact on the beneficiaries’ sample (183 MSMEs in Treatment Group A) was compared with the performance of thee control groups: (1) 225 MSMEs without any BDS assistance in pilot states (Control Group B); (2) 74 MSMEs benefiting from other BDS providers’ (non-clients) services in non-pilot states (Control Group C), and (3) 295 MSMEs without any BDS assistance in non-pilot states. Average monthly sales of Group A MSMEs grew by 84.2 percent versus 3.5 percent for Group B, 6.2 percent for Group C, while no information was provided on Group D. Not all groups provided employment figures and a comparison of results is therefore impossible.

    The above assessment does not allow to reach attribution to employment growth to the project, while it was not possible to determine value added. The BDS component had a clear effect on sales though, and a self-reported improvement in business skills of beneficiary MSMEs.

5. Efficiency:

The delays in project implementation schedule of about 2.5 years caused significantly higher project implementation costs, with Component 5 reaching a total cost of US$8.6 million compared to the originally planned amount of US$2.3 million, although the total includes technical services not related to project management (e.g., secured lending, resolution of IT issues affecting the business registration databases).

Some of the major delays affecting implementation were beyond the control of the project team.Even though IRRs were calculated for two components, accounting for 47% of disbursements, the overall efficiency of the project, due to delays and implementation costs, 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
Coverage/Scope*
Appraisal:
Yes
26.2%
91%
ICR estimate:
Yes
28%
47%

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

6. Outcome:

The project addressed substantially relevant objectives, with a credible result chain that made its design substantially relevant. The project suffered from start-up delays and implementation costs that were higher than planned due to a difficult operating environment, thus limiting its efficiency to modest. However, the project achieved significant outcomes in the three states it operated in, with substantial efficacy.

This ICR Review therefore concurs with the ICR in rating the project outcome as moderately satisfactory.

a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:

Non-oil sector growth is contingent upon greater bank lending and completion of privatization of power generation. Progress on both financial sector and power sector reform has been slow, but the risk of reversal is moderate. The global financial crisis of 2008 seriously affected the Nigerian banking sector, limiting access to financing. A possible deepening of the crisis might affect MSME borrowing in the future. Finally, risks of political instability and intensified violence, which would also negatively impact Nigeria’s business environment, are also low.

IEG therefore concurs with the ICR’s assessment of risk to development outcome as moderate.

a. Risk to Development Outcome Rating: Moderate

8. Assessment of Bank Performance:

a. Quality at entry:

The Project was part of the joint IDA-IFC MSME Development Pilot Program for Africa. The Program aimed at unlocking private sector growth in selected African countries by supporting MSMEs, which taken together account for the vast majority of private sector activities in most of the continent. Projects under this Pilot Program were meant to differ from previous private sector development projects in three ways: (i) they would address MSME constraints in a holistic manner, i.e., by tackling regulatory obstacles, as well as facilitating access to finance and the creation of a market for business development services; (ii) they would rely on a range of private sector partners for implementation, (iii) they would provide a framework for collaboration between the Bank and IFC. The initial pilot included seven countries: Ghana, Kenya, Madagascar, Mali, Nigeria, Tanzania and Uganda. The program was later extended outside the Africa region to Cambodia and Papua New Guinea.

The project design was based on considerable Economic and Sector Work which revealed that the non-oil private sector in Nigeria faced major development challenges. The business development services component focused on four target industries, based on a set of selection criteria identified in the PAD. The criteria included: high growth potential; size of the industry (contribution to GDP) and geographical distribution; number of MSMEs in the value chain and MSME employment; potential for local MSMEs to capture more value added and commitment of key stakeholders. The catfish industry was selected at appraisal while rice, palm oil, and tourism sectors were included during implementation.

Project design did not adequately consider the challenges of establishing a complex implementation structure with a privately run Project Management Unit (PMU) under a government Project Implementation Unit (PIU), as discussed in Section 9.

Quality-at-Entry Rating: Moderately Satisfactory

b. Quality of supervision:

Bank supervision was adequate and identified issues as they emerged. Fiduciary concerns were addressed swiftly when they emerged, project design was adapted as it became clear that difficult counterpart funding was affecting project performance. Funds were reallocated among components based on demand, even though early restructuring might have been preferable, as highlighted in the ICR (p.8 and 23), as it would have reduced the scale of the planned activities to conform more to operational constraints and to allow for better monitoring of the project.

Project ratings in the last ISR also show a disconnect with those in previous ISRs and in the ICR. Both ratings for Progress towards achievement of PDO and Overall Implementation Progress (IP) were in fact increased from moderately satisfactory to satisfactory in the last ISR (n. 19), and reduced again to moderately satisfactory by the ICR. The ICR (p. 22-23) concluded that it might have been appropriate to use a more conservative rating in the final ISR, as the latter was not based on a new, end-project impact assessment to reconfirm previously recorded progress and given that some of the planned investment climate reforms had not been completed by that time.

Quality of Supervision Rating: Moderately Satisfactory

Overall Bank Performance Rating: Moderately Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The project outsourced management to a PMU run by a private contractor. This met with opposition in part of the Government’s bureaucracy that slowed down progress and affected implementation. Government commitment was generally low. Government did not provide the agreed co-financing leading the Bank to increase the percentage of expenditure to be financed by the IDA credit to 100% on all categories in July 2007. A comprehensive approach like the one envisaged under the project needed strong government leadership that was simply not there.

Government Performance Rating: Unsatisfactory

b. Implementing Agency Performance:

    The privately run PMU reported to a PIU housed at the Nigerian Investment Promotion Council (NIPC). According to the ICR, NIPC showed strong commitment but this was obviously at a level insufficient to implement key reforms. The initial selection of the PMU was lengthy, and there were initial fiduciary issues that led to a Financial Management review. As the PIU and not the privately-run PMU is what matters here, it can be rated only as moderately unsatisfactory, considering the slow start that affected project efficiency.

Implementing Agency Performance Rating: Moderately Unsatisfactory

Overall Borrower Performance Rating: Moderately Unsatisfactory

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

a. M&E Design:

The monitoring and evaluation system should have been focused on monitoring the main development outcome, increased value added by MSMEs. However, this was not well thought through and the final impact assessment had to use a proxy (sales) to determine impact. The PAD itself described the M&E system in an annex where it highlighted the inherent difficulties in monitoring value added and suggested possible alternative indicators like sales and employment that were later used in the project’s impact assessment. As this issue was well known at design, it is difficult to understand why the project did not use a different performance indicator from the very beginning.

b. M&E Implementation:

    The ICR includes no useful information on M&E implementation.

a. M&E Utilization:

The ICR includes no useful information on M&E utilization.

M&E Quality Rating: Modest

11. Other Issues:

a. Safeguards:

    The project had an environment category of “C” that did not trigger any safeguard policy.

b. Fiduciary Compliance:

The project FM rating was downgraded to moderately unsatisfactory in 2009,due to a series of factors: poor filing system; high turnover of FM project staff; breakdown in the computerized accounting system; delays by project management to resolve issues identified in audited financial statements and FM supervision mission reports; absence of internal audit activities, and inadequate staffing for the FM function. A FM review was carried out concluding that the PIU had addressed all of the above issues, and leading to an upgraded FM rating of moderately satisfactory by 2010.

c. Unintended Impacts (positive or negative):
None.

d. Other:



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Moderately Satisfactory
Moderately Satisfactory
 
Risk to Development Outcome:
Moderate
Moderate
 
Bank Performance:
Moderately Satisfactory
Moderately Satisfactory
 
Borrower Performance:
Moderately Satisfactory
Moderately Unsatisfactory
Limited government commitment led to an extremely slow project start-up and elimination of any counterpart funding. 
Quality of ICR:
 
Satisfactory
 
NOTES:
- 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 main lessons that can be drawn from the experience of this project are:

    • Significant results can be achieved even in a difficult environment when different parts of the World Bank Group work together leveraging each other’s strengths.
    • It is always essential to prioritize interventions and focus on the most binding constraints to private sector development, through the project or parallel interventions. The overall strategy needs to have a coherent framework where MSME support programs are part of a broader reform of the investment climate. Tools without an enabling environment are less effective.
    • Having a pilot without a top class monitoring and evaluation system is self-contradictory. Pilots are made for learning and possible scale-up, and without the proper M&E frameworks, no learning can take place.
    • Implementation mechanisms with dual implementing agencies are difficult to run as they complicate approval processes, and diffuse accountability.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:


The ICR gives a candid statement on performance and is very informative in many respects. The ICR measured the key PDO indicator in terms of higher sales and increased employment but this was caused by poor design of the M&E system at entry. There are some minor mistakes across (for example inconsistencies between the ICR Datasheet and the ICR itself), but the overall quality is satisfactory.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6INV-Jun-2011)
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