Tanzania - Second Financial Institutions Development Project

Document of The World Bank Report No. 19611 - TA PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 20.6 MILLION (US$27.5 MILLION EQUIVALENT) TO TWE UNITED REPUBLIC OF TANZANIA FOR A SECOND FINANCIAL INSTITUTIONS DEVELOPMENT PROJECT August 4, 1999 Private Sector and Finance Unit Country Department AFC04 Africa Region  CURRENCY EQUIVALENTS Currency Unit = Tanzanian Shilling (Tsh.) US$1 = Tsh. 700 (May 1999) FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS BOT Bank of Tanzania BSD Bank Supervision Directorate CGAP Consultative Group for Assistance to the Poor CMSA Capital Markets and Securities Authority CRDB Cooperative and Rural Development Bank DANIDA Danish International Development Agency DSE Dar es Salaam Stock Exchange FIDP Financial Institutions Development Project FMD Finarcial Markets Directorate FSAC Financial Sector Adjustment Credit GOT Government of Tanzania LACI Loan Administration Change Initiative LART Loans and Advances Realization Trust MOF Ministry of Finance MOU Memorandum of Understanding NBC National Bank of Commerce NBFI Non-Bank Financial Institution NIC National Insurance Corporation NMB National Microfinance Bank NPF National Provident Fund OTC Over-the-Counter PBZ People's Bank of Zanzibar PIP Project Implementation Plan PMR Project Management Report PPRP Parastatal and Public Sector Reform Project PSRC Parastatal Sector Reform Commission PPF Project Preparation Facility PT Privatization Trust SAC Structural Adjustment Credit SACCO Savings and Credit Cooperatives Organization TA Technical Assistance ZIC Zanzibar Insurance Corporation Vice President Callisto Madavo Country Director James W. Adams Sector Manager Gerard Byam Team Leader Antony Thompson  1 TANZANIA SECOND FINANCIAL INSTITUTIONS DEVELOPMENT PROJECT CONTENTS A. Project Development Objective 4 1. Project development objective and key performance indicators 4 B. Strategic Context 4 1. Sectoral-related Country Assistance Strategy (CAS) 4 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 7 C. Project Description Summany 10 1. Project Components 10 2. Key policy and institutional reforms supported by the project 10 3. Benefits and target population 10 4. Institutional and implementation arrangements 11 D. Project Rationale 12 1. Project alternaties considered and reasons for rejection 12 2. Major related projects financed by the Bank and/or other development agencies 13 3. Lessons learned and reflected in the project design 13 4. Indications of borrower commitment and ownership 13 5. Value Added of Bank Support in this project 13 E. Project Analysis 15 1. Economic and financial Assessment 15 2. Technical Assessment 18 3. Institutional 19 4. Social 19 5. Environmental Assess 19 6. Participatory Approach 19 F. Sustainability and Risks 20 1. Sustainability 20 2. Critical Risks 21 3. Possible Controversial Aspects 22 G. Main Loan Conditions 22 2. Effectiveness Conditions 22 3. Other Conditions 22  2 H. Readiness for Implementation 23 I. Compliance with Bank Policies 24 ANNEXES Annex 1: Project Design Summary 24 Annex 2: Detailed Project Description 30 Annex 3: Estimated Project Costs 39 Annex 4: Cost Effectiveness Analysis Summary 40 Annex 5: Financial Summary and Financial projections 42 Annex SA: Consolidated Financial projections for NMB 45 Annex 6: Procurement and Disbursement Arrangements 52 Annex 7: Project Processing and Budget Schedule 62 Annex 8: Documents in Project File 63 Annex 9: Statement of Loans and Credits 64 Annex 10: Country at a Glance 66 MAP  TANZANIA SECOND FINANCIAL INSTITUTIONS DEVELOPMENT PROJECT Project Appraisal Document Africa Region Private Sector and Finance Date: August 4, 1999 Task Team Leader/Task Manager: Antony Thompson Country Manager/Director: James W. Adams Sector Director: Alan G. Gelb Project ID: 57187 Sector: Financial Program Objective Category: Private Sector Development Lending Instrument: SIL Program of Targeted Intervention: [X] Yes [ ]No Project Financing Data L Loan 0x Credit LI Guarantee [ Other [Specify] For Loans/Credits/Others: Amount: US$27.5 million/SDR 20.6 million on Standard IDA terms Proposed Terms: E] To be El Multicurrency L Single currency defined Grace period [years]: 10 years [] Standard [1 Fixed [] LIBOR-based Variable Years to maturity: 40 years Commitment fee: Standard IDA Service charge: Standard IDA Financing plan: US$27.5million Source Local Foreign Total Government: 4.4 4.4 Cofinanciers 0.2 0.2 IBRD/IDA : 2.1 25.4 27.5 Borrower: United Republic of Tanzania Guarantor: Not Applicable Responsible agencies: Bank of Tanzania (BOT), Ministry of Finance (MOF) , National Microfinance Bank, Insurance Supervisory Department, Capital Markets and Securities Authority Estimated Disbursement Bank FY/US$ millions FY00 FY01 FY02 FY03 Total Annual 8.26 8.92 7.26 3.01 27.45 Cumulative 8.26 17.18 24.44 27.45 Project Implementation Period: 4 years Expected Effectiveness Date: October 15, 1999 Expected Closing Date: December 31, 2003  Page 4 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1 for performance indicators) The objective of the project is to improve access by small savers and micro entrepreneurs to a sound and competitive financial system. This will be accomplished by: (i) restructuring and/or privatizing state owned banks including transforming the NMB into a private microfinance bank; (ii) strengthening the supporting financial infrastructure by, inter-alia, enhancing the capacity of the central bank to supervise banks and by improving the efficiency of the national payments system; and (iii) increasing savings and investment opportunities by promoting the development of contractual savings and capital markets. Project benefits would be measured through an assessment of: * Increased access by rural savers and micro entrepreneurs to the formal financial system. * Reduced Government ownership of (as a proxy for intervention in) the banking sector.