Senegal - Social Development Fund Project

Document of The World Bank Report No: 20195-SE PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 23.6 MILLION (US$30 MILLION EQUIVALENT) TO THE REPUBLIC OF SENEGAL FOR A SOCLkL DEVELOPMENT FUND PROJECT IN SUPPORT OF THE FIRST PHASE OF A SOCIAL DEVELOPMENT FUND PROGRAM December 1, 2000 Human Development II Country Department 14 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2000) Currency Unit = FCFA FCFA 1 = US$0.00 14 US$1 = FCFA 697 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADM Agence de D&veloppement Municipal MEF Ministere de l'Economie et des Finance AfDB African Development Bank MFSN Ministere de la Famille el de la Solidarite Nationale AGETIP Agence d'Execution des Travaux dI'ntereit Public MFSU Micro-Finance Support Unit contre le Sous-Emploi MIS Management Information System APL Adaptable Program Lending NGO Non-Governmental Organization CAS Country Assistance Strategy NPPA National Program for Poverty Alleviation CBOs Community-Based Organizations NRIP National Rural Infrastructure Program CDSU Community Development Support Unit OCC Orientation and Coordination Committee CIDA Canadian International Development Agency PA Project Account CMTS Coordination and Monitoring Technical Secretariat PAGD Management Development Project CNLP Coordination Nationale de Lutte contre la Pauvrete PANC Poverty Alleviation National Coordination CSFU Central Social Fund Unit PDEF Plan Decennal de l'Education ei de la Formation DDI Direction de la Dette et de l'Investissement PDRHI Projet de Developpement des Ressources Humaines I DPS Direction de la Prevision et de la Statistique PDIS Plan de Developpemnt Integre de la Sante DP Department of Planning PFI Participating Financial Institution ECD Early Childhood Development PLP Programme de Lutte contre la Pauvrete ESAM Enquetes Sdnigalaises aupres des Manages PPA Participatory Poverty Assessment FAU Financial and Administrative Unit RFMU Regional Fund Management Unit FCFA Franc de la Communaute Financiere de l'Afrique SA Special Account GMT Grassroot Management Training SCAs Saving and Credit Associations HBS Household Budget Survey SDF Social Development Fund IDA Intemational Development Association SDFP Social Development Fund Program IEC Information Education and Communication SDC Social Development Credit IGA Income-Generating Activities SDG Social Development Grant IMEU Information Monitoring and Evaluation Unit SFMA Social Fund Management Association IRCD International Research Center for Development SFMU Social Fund Management Unit LACI Loan Administration Change Initiative UNDP United Nations Development Programme MB Managing Board WB World Bank Vice President: Callisto E. Madavo Country Director: John McIntire Sector Manager: Nicholas R. Bumett Task Team Leader: Alassane Diawara  SENEGAL SOCIAL DEVELOPMENT FUND PROGRAM CONTENTS A. Program Purpose and Project Development Objective Page 1. Program purpose and program phasing 3 2. Project development objective 3 3. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 4 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 5 4. Program description and performance triggers for subsequent loans 7 C. Program and Project Description Summary 1. Project components 10 2. Key policy and institutional reforms supported by the project 10 3. Benefits and target population 11 .4. Institutional and implementation arrangements 12 D. Project Rationale 1. Project alternatives considered and reasons for rejection 17 2. Major related projects financed by the Bank and other development agencies 19 3. Lessons learned and reflected in proposed project design 19 4. Indications of borrower commitment and ownership 21 5. Value added of Bank support in this project 21 E. Summary Project Analysis 1. Economic 21 2. Financial 23 3. Technical 24 4. Institutional 24 5. Environmental 28 6. Social 30 7. Safeguard Policies 34 F. Sustainability and Risks 1. Sustainability 34 2. Critical risks 34 3. Possible controversial aspects 35  G. Main Conditions 1. Effectiveness Condition 35 2. Other 36 H. Readiness for Implementation 36 I. Compliance with Bank Policies 37 Annexes Annex 1: Project Design Summary 38 Annex 2: Detailed Project Description 44 Annex 3: Estimated Project Costs 58 Annex 4: Cost-Effectiveness Analysis Summary 59 Annex 5: Financial Summary 64 Annex 6: Procurement and Disbursement Arrangements 65 Annex 7: Project Processing Schedule 76 Annex 8: Documents in the Project File 77 Annex 9: Statement of Loans and Credits 79 Annex 10: Country at a Glance 81 Annex I 1: Summary Findings of Social Assessment 83 Annex 12: Mainstreaming Gender into the Social Development Fund 91 Annex 13: Note on Strategy for Poverty Targeting in the Social Development Fund Project 102 Annex 14: Institutional Arrangements 111 Annex 15: Financial Management Arrangements 116 Annex 16: Improving Access to Micro-Finance 123 Annex 17: Grassroot Management Training (GMT) for CBO's Capacity Building 130 MAP(S) IBRD 31219  SENEGAL Social Development Fund Program Project Appraisal Document Africa Regional Office AFC14 Date: December 1, 2000 Team Leader: Alassane Diawara Country Manager/Director: John McIntire Sector Manager/Director: Nicholas R. Bumett Project ID: P041566 Sector(s): SY - Other Social Protection Lending Instrument: Adaptable Program Loan (APL) Theme(s): Poverty Reduction Poverty Targeted Intervention: Y Program Financing Data Estimated APL Indicative Financing Plan Implementation Period Borrower i_______ ______________ ._____ _ - __ ._ _;;(Bank FY ) IDA Others Total Commitment Closing US$ m % US$ m USS m Date Date APL 1 30.00 64.5 16.52 46.52 03/31/2001 12/31/2004 Ministry of Economy and Loan/ Finance, Senegal Credit APL 2 30.00 50.0 30.00 60.00 12/31/2004 12/31/2007 Ministry of Economy and Loan/ Finance, Senegal Credit__ _ _ _ ___ _ _ _ _ APL 3 25.00 45.5 30.00 55.00 12/31/2007 12/31/2011 Ministry of Economy and Loan/ Finance, Senegal Credit API-4 Loan! Credit____ __ iTotal 85.00 1 76.52 161.52 Project Financing Data [ I Loan [XI Credit [I Grant [I Guarantee [ Other: For LoanstCreditslOthers: Amount (US$m): 30.00 Proposed Terms: Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: Service charge: 0.75% Financing Plan: Source Local Foreign Total BORROWER 2.17 1.45 3.62 IDA 17.80 12.20 30.00 OTHER SOURCES 7.74 5.16 12.90 Total: 27.71 18.81 46.52 Borrower: GOVERNMENT OF SENEGAL Responsible agency: MINISTRY OF FAMILY AFFAIRS AND NATIONAL SOLIDARITY  Address: Building Administratif, 6eme etage Contact Person: Aminata Tall Tel: 221 822 36 94 Fax: 221 823 66 73 Email: Other Agency(ies): Association pour le Fonds de Developpement Social (AFDS) Address: Building Administratif 6eme etage, Dakar, Senegal Contact Person: Aminata Tall Tel: 221 822 36 94 Fax: 221 823 66 73 Email: Estimated disbursements ( Bank FY/US$M): FY 2001 2002 2003 2004 Annual 2.22 11.04 10.78 5.96 Cumulative 2.22 13.26 24.04 30.00 Project implementation period: 3 years Expected effectiveness date: 03/31/2001 Expected closing date: 12/31/2004 OCS AM. PAD F-l. R"l M . 2W -2 -  A. Program Purpose and Project Development Objective 1. Program purpose and program phasing: The program will support, as part of the core Country Assistance Strategy (CAS), the capacity of poor communities to effectively manage their own development resources and economic and social services with equal participation of vulnerable groups, which will be gender inclusive. The program will support four main strategic objectives of the Govemment of Senegal: (i) increasing access to basic social services through direct and indirect poverty reduction interventions; (ii) increasing access of poorer groups of the population to micro-finance products and services via existing participating financial institutions (PFIs) and savings and credit associations (SCAs); (iii) capacity building of community-based organizations (CBOs), PFIs and SCAs, and (iv) capacity building of Government for poverty strategy management, monitoring and evaluation. The proposed program will cover a total of 10 years. It will be carried out in three phases. The aim of this approach is to start activities on a small scale and progressively expand them by fine-tuning mechanisms and tools of intervention. The first phase of 3 years specifically aims at setting up and operationalizing the structures needed for the project to take off, sensitizing the beneficiaries about the project, testing the service delivery strategy at the central and local levels through small-scale operations designed to ease out the leaming process and, based on lessons leamed, start the second phase. Phase 2 is planned for 3 years and aims at scaling up implementation of the project components in order to reach all targeted communities within the program, as well as harmonizing objectives and procedures of all donor-financed social funds operating in the country. Based on the successes of the second phase, the third phase (4 years) will be implemented with the view to fine-tuning the operational mechanism and mainstreaming the strategy nationwide to include other operations, while ensuring long-term sustainability of the mechanism. 2. Project development objective: (see Annex 1) The project development objective is to achieve the effective use of social funds in priority development areas by the poorest test communities in the poorest regions of Senegal with participation of vulnerable groups and women. The Government of Senegal has developed a framework for poverty reduction in the form of the Programme de Lutte Contre la Pauvrete (PLP). The Social Development Fund (SDF) Program has been formulated within this framework to ensure that its efforts to reduce poverty in Senegal are part of the country's long-term poverty strategy and will complement several other WB and donor-assisted projects aimed at poverty alleviation, with a view to preventing duplication and risks of contradiction. The project will build upon the positive experiences gained through: (i) long-term past e.xperience of CBOs' development through Non-Governmental Organization (NGO) support; and (ii) extensive experience of PFIs and SCAs in providing finances and services to weaker socio-economic groups of the Senegalese society. 3. Key performance indicators: (see Annex I) Outcome Indicators * 75 % of the 300 test communities making development decisions based on participatory development plans responsive to the needs of the poorest * at least, 50 % of vulnerable groups and families within the test commnunities are aware of the basic - 3 -  processes of sub-projects' implementation and are satisfied with the outcomes Output Indicators * 300 test communities requesting funds for sub-projects complying with Social Fund criteria * 50 % of vulnerable groups receiving TA under the project meet the micro-finance institutions' credit criteria * 75 % of projects formulated and implemented by the CBOs (trained under the project) reflect criteria of sound design and are implemented according to the strategy of the Social Fund * 90 % of the test communities are satisfied with the services of the SDF and feel it is equitable and transparent * 90 % of vulnerable members of eligible test communities are aware of and understand the procedures of the projects financed by the Social Fund * Communities are targeted by the Social Fund based on data provided by Poverty Monitoring B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDAJR98-2 Date of latest CAS discussion: 0 1/29/98 The over-arching objective of the Senegal CAS is to reduce the incidence of poverty and create gainful employment, especially for youth and women. This is to be addressed through a two-pronged strategy: (i) supporting policies and programs aimed at more rapid and sustained growth; and (ii) ensuring the social sustainability of the program. The proposed operation is meant to provide direct support for poverty alleviation activities, especially focused on the social and economic development of women and youth. The project will specifically contribute to the CAS objective by: (i) reinforcing CBOs and civil society groups in terns of managerial and operational capacity with equal participation of vulnerable groups, and specifically help women and youth to access basic social services and infrastructure, (ii) reinforcing PFIs and SCAs in terms of management capacity and their ability to offer financial products and services attractive and accessible to poorer borrowers, particularly women of the poorest groups, and (iii) improving the govemment's monitoring and analysis of poverty trends in order to increase the efficiency of decision-making in this sector. 2. Main sector issues and Government strategy: According to the 1991-92 Priority Survey, about 33% of Senegalese households live below the poverty line. In most countries, including Senegal, poverty is a rural phenomenon with over 80% of poor households found in rural areas. Dakar, however, houses 21% of the total Senegalese population. Thus, the capital city has a significant proportion of poor households (12%), most of them living in peri-urban areas (See Senegal: An Assessment ofLiving Conditions, 1995 World Bank). Results from the 1994-95 poverty survey indicate a rise in the overall poverty rate. Despite some recent improvement in macroeconomic performance, poverty indicators (level of household expenditure) remain high, and there is no clear indication of a trickle-down effect of recent growth to benefit the poor. Overall, progress remains fragile and social and economic indicators are still poor by the standards of countries with similar levels of income (Senegal's estimated GNP per capita for 1998 was US$550). Despite the implementation of Government programs to improve the condition of women since the early 1 960s, women remain a particularly vulnerable group. The illiteracy rate is 66% for women (compared to 47% for men), and the female drop-out rate is high due to women's household task requirements, early - 4 -  marriage, and pregnancies (median marriage age for women is 16.6 years and median age at birth of first child is 19.4 years). The nutrition of women is poor, and 42% of women between ages 15-49 years are considered anemic. Women do not have easy access to land and agricultural services, and their access to credit is predominantly limited to credit clubs (tontines) which permit them only very small loans. A second highly vulnerable group is the untrained or insufficiently trained youth. The estimated unemployment rate among people 20-34 in urban centers has reached 40%, compared to 29% for the total population. Primary school enrollment is only 68% and the dropout rate is 75%. About 23% of children under five suffer from malnutrition. Adolescents and young adults are particularly vulnerable to HIV-AIDS and other sexually transmitted diseases. Finally, the increase in urban youth criminality and child mendacity are rising concems for Senegalese authorities. The Govermment's overall development strategy is articulated in the Ninth Socio-Economic Development Plan (1998-2001), adopted by the National Assembly in February 1997 after extensive consultations. The Plan's objective is highly focused on poverty reduction and human development (out of its 10 strategic axes, at least 7 involve human development activities). In addition, the Government formulated a Five-year Action Plan for Women and Development. The Action Plan highlighted four areas to improve the status of women in Senegal: (i) access to financing, income generation, and poverty alleviation; (ii) capacity building of women's organizations; (iii) reproductive health and family planning; and (iv) women's rights and empowerment. In December 1997, the Government of Senegal developed a comprehensive Poverty Reduction Program with the inputs of several donors, (including UNDP, Canada, and Germany). The objectives of the Program are to: (1) improve the resource base of poor categories through economic and community development activities; (2) improve the quality and quantity of social infrastructure and social services in poverty areas and groups; (3) build monitoring capacity of institutions in charge of poverty reduction policy as well as the capacity of organizations of the poor themselves. The basis of the strategy to be implemented will be a participatory approach and partnership. Thus, the proposed project will seek to contribute to the implementation of the three main axes of this poverty reduction strategy. 3. Sector issues to be addressed by the project and strategic choices: Low level of income and lack of access to economic opportunities, particularly among women and youth: The lack of access to development resources and services, including financial services and inputs for production purposes, contribute to the low economic status of poor communities. They also have distorted information on economic opportunities and are disconnected from the local and national economy. The project will contribute to raising income of poor communities and vulnerable groups (women and youth) through the following activities: (a) small matching grants for time-saving equipment (grinding rnills) for women's tasks, thereby improving their health status; (b) provision of financial services through existing PFIs; (c) linking existing traditional saving and credit associations (SCAs) to micro-finance institutions (caisses mutalistes and other finance institutions); (d) supporting SCAs through financing of fixed costs, start-up and management training; and (e) training to improve the operations and maintenance of productive equipment and to improve technical skills for productive activities. The project will provide economic information and sources of funding to beneficiary communities and develop their institutional capacity for networking and partnership through integrated income-generating activities (IGAs). A sub-projects menu will be developed through participatory discussions with the targeted populations. Links will be established with existing projects financed by other donors, and the communities will be encouraged to consider small projects which will better allow them to benefit from the larger formal sector -5 -  projects. The vulnerable group participants will choose a project, develop a plan and proposal, submit the plan to the SFMU and, if approved, receive grant money to implement the project. The list of projects could include proposals covering a wide range of activities in many sectors, such as those below: Health status of women and children: The poor nutritional status of women and of children under five contributes significantly to the high maternal mortality (510 deaths per 100,000) and infant deaths (60 per 1,000 live births) rates. Malnutrition and anemia remain a serious problem among children, pregnant women and lactating mothers. Two Bank-financed projects support the Govemment's efforts in the area of Early Childhood Development (ECD): the ongoing Community Nutrition Project and the proposed Education Quality for All Project- Where these projects have interventions in the Social Fund selected regions, complementary activities, such as construction/rehabilitation and equipment of community kindergartens in test communities and pre-school centers, community management training, and software sub-projects linked to the health and nutrition of lactating mothers and their children, will be included in the SDF activities "menu." Two other Bank-assisted projects support the Government's efforts towards better health and nutrition: the Integrated Health Sector Development Program and the School-Health/Nutrition Component of the proposed Quality Education for All Project. Where these projects have interventions in selected regions covered by the Social Fund, SDF promoters and facilitators will be encouraged to remind communities systematically of HIV/AIDS activities as it is a sensitive, but vital issue. Women's and Girls' Participation in Economic and Social Development is Low: Strategies suggested to communities for improving women's/girls' status will include: (1) interventions that reduce demands on women's time (closer sources of water and fuel-saving technology); (2) providing school-based child care centers; (3) organizing IEC campaigns to encourage girls' education, the IEC campaigns will take into account women's time constraint; often, informnation is available, but women do not obtain it. This is partly because the timing of the information flow conflicts with women's work: they are either out in the field working, or completely unaware of the information being provided. Measures will be taken to address these problems; (4) a gender-sensitive school environment (e.g. separate latrines, gender-sensitive teachers, reduction of domestic chores for girls in schools and equal participation for boys and girls in classrooms); and providing training to women for literacy and income generation. Low access to basic infrastructure and services: Basic infrastructure and services are usually not accessible to poor communities. Nevertheless, when they exist they do not function well or are ill-maintained because of lack of ownership by the community. The project will include two types of infrastructure in its "menu," depending on the zone. In areas where the National Rural Infrastructure Project (NRIP) is active, the project menu will include ECD infrastructure (pre-schools and kindergartens). In other poverty-stricken areas, the menu of eligible sub-projects will include village access roads, small bridges, health posts, schools, latrines, and water points. Cost-recovery schemes and beneficiary contributions will be key elements in the success of such activities. Weak institutional capacities of Community-Based Organizations (CBOs) owned by the poor: Although Senegal is characterized by a dynamic associative sector, individual benefit (particularly in remote rural villages) from associations is not significant, thereby threatening the continued success of the movement. Indigenous associations and groups have developed community-based organizations as a solution for confronting economic, social, and political challenges. However, without access to economic opportunities, these organizations cannot benefit from institutional resources. The consequence is that -6 -  CBOs have had difficulty in: (i) identifying projects which correctly correspond to their needs; (ii) fornulating and managing projects; (iii) getting the information necessary to design and monitor contracts for basic social services and infrastructure projects implemented by Non-Governmental Organizations (NGOs) or the local private sector; (iv) monitoring and analyzing economic, social, and poverty data; and (v) building partnerships with other CBOs, NGOs, local government, and other decentralized structures to ensure that these institutions respond to the needs of the poor. The project will attempt to strengthen the capacity of the associations so that they might better assist individuals by providing safety nets through capacity building training. It will also reinforce the capacity of selected CBOs to focus their activities on women and youth, especially in the field of project design for software activities such as training poor in HIVIAIDS, nutrition, and ECD activities. The project will also support: (i) capacity-building activities in resource management within savings and credit associations and health "mutuelles " active at the grassroots level; (ii) promotion of information flow into communities and their organizations (care must be taken to ensure that the information flow is simple and easily understandable by the poor; if necessary, information should be provided in local languages); (iii) delivery of literacy and post-alpha programs; (iv) training of CBO leaders in organization management and project formulation and implementation; (v) building of databases on contractors and services provided at the community level; (vi) definition of procedures and systems for contracting; and (vii) monitoring by CBOs of projects executed by contractors, including, NGOs. Weak capacity to monitor and analyze poverty data and insufficient coordination of efforts: Poverty monitoring, strategic communication, and technical assistance to users and producers of social (statistical) data is a real need in Senegal. One of the most immediate needs in the social sector is a strong up-to-date database of the key indicators of poverty, based on continuing and participatory poverty assessments (PPAs). To address this need, the Government is preparing a strategy for an integrated approach for data collection and analysis, based on the existing structures at the regional, departmental, and local levels. A key aspect of this strategy is the development of a complete economic and social data baseline with output indicators reflecting an efficient information and monitoring system. The project will support the implementation of this strategy and will provide capacity building at the central level. In addition, the project will contribute to the financing of Household Budget Surveys and two light surveys which will provide data to monitor poverty levels during the life span of the project. Qualitative surveys and PPAs will complement the quantitative data collection and analysis process. Ultimately, the project will help the Govemment devise long-term strategies to sustain this effort by earmarking funds for poverty monitoring and analysis nationwide. 4. Program description and performance triggers for subsequent loans: Phase 1: Start-up and concentration in poverty-stricken zones This phase will be limited to: (i) setting up the institutional system in five regions; (ii) selecting a limited number of communities to test and experiment with ways of working with the most vulnerable groups of poor communities (poor women and youth in poverty-stricken zones) so they will leam to manage their own development resources effectively and economic and social services; (iii) testing tools and procedures for the design and implementation of the sub-projects in selected communities; (iv) monitoring and evaluating the ongoing test projects; (v) consolidating and capitalizing on lessons learned for scaling up of activities; (vi) building capacities for communities with a view to broadening prcject impact; and (vii) development and implementation of a simple and practical Management Information System (MIS). -7 -  The above strategy applies to all project components. For example, with regard to the Basic Community Infrastructure sub-component, this phase will: (i) test the community-based sub-contracting mechanism for the provision of infrastructure in a limited number of demand-driven sub-projects; (ii) closely monitor and evaluate these pilot interventions; iii) prepare to scale up the approach in other IDA-assisted projects. With regard to component 4, this phase will support the deve lopment of a comprehensive baseline poverty data and establishment of a permanent monitoring system. Performance Triggers conditioning the transition to phase 2: * Implementation tools are performing according to established standards - SDF structures are set up and operational: Social Fund Management Unit (SFMU), the Community Development Support Unit (CDSU), the Micro-Finance Support Unit (MFSU), the Information Monitoring and Evaluation Unit (IMEU), the Financial and Administrative Unit (FAU) and the Regional Fund Management Unit (RFMU); - the micro-finance system is operational in 5 targeted regions through a network of at least 10 PFIs - creation of 300 SCAs implementing 300 IGAs; - 80% of 57 target "Communautes Rurales " have developed their own local development plans which are appraised and approved; they are based on the priority needs of vulnerable groups, as reflected in the PPA, and ready to be translated into sub-projects for funding; - The Poverty Management Information System (PMIS) is developed and generates useful information regularly disseminated to Ministries, Local Governments and CBOs for their development plans; - The results and lessons learned from the first phase of the program have been communicated to SFMA, CBOs, NGOs, Local Governments, PFIs and other potential stakeholders involved in implementing Phase II. * Outcome Indicators 30 % of test communities making development decisions based on priorities of local development plans 50 % of vulnerable groups receiving TA under the project meet the micro-finance institution credit criteria. * Output Indicator 75 % of projects formulated and implemented by the CBOs (trained under the project) which reflect criteria of sound design and are implemented according to the strategy of the SDF. Phase 2: Scaling up and geographical expansion This phase will expand the strategies tested in the pilot phase on a larger scale or in different contexts. Keeping in mind the overarching aim of the project, the strategy will focus on the delivery mechanism of the projects implemented. Where successful, this approach will be applied to other projects in the target areas. More specifically, the second phase entails: (i) scaling up of all components (SDG & SDC) in targeted villages where other donors are not implementing similar activities; (ii) monitoring and evaluation of the project implementation mechanism and activities; and (iii) capitalizing on lessons learned. Performance Triggers conditioning the transition to phase 3 -8 -  * The SDF approach is expanded to other regions not covered by other donors - PPAs are conducted in all target communities where other donors are not implementing similar activities - The micro-finance activities harmonized with micro-finance components of other donor-financed projects - Increase in cost-share of the PMIS by the Govemment: recurrent cost supported by the Government budget progressively up to 50% * Outcome indicators - 70 % of test communities making development decisions based on development plan - 75 % of vulnerable groups receiving TA under the project meet the micro-finance institution's credit criteria * Output indicators - 75 % of projects formulated and implemented by the CBOs (trained under the project) reflect criteria of sound design and are implemented according to the strategy of the project. Phase 3: Fine-tuning The third phase of the project aims at: (i) fine-tuning the operational mechanism of the SDF; (ii) harmonization of procedures (community procurement, financial management, monitoring and evaluation) of community-based projects with other donors based on constant M&E feedback; and (iii) capitalization on lessons learned for long-term sustainability. Projects will be extended to a greater number of villages. Other priority areas not touched during Phases I and 2 will be targeted. * Outcome indicators - 90% of communities targeted under phase 2 are satisfied with the services of the SDF, feel that it is equitable and transparent, and are able to work with the SDF as well as with other donors. * Output indicators - database on poverty conditions is operational -9-  C. Program and Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Indicative Bank- % of Component Sector costs % of financing Bank- _____________________________ (US$M) Total (US$M) financing 1. Basic Social Services and Social Investment 12.35 26.5 12.04 40.1 Community Infrastructure Funds 2. Access to Micro-Finance: 19.79 42.5 4.31 14.4 Increase access to micro-finance services and financing Income-Generating Activities 3. Vulnerable Groups and CBOs Social Funds & 3.54 7.6 3.54 11.8 Capacity Building Social Assistance -- Institutional Development -- Capacity Building 4. Social Fund Management (including Institutional 9.80 21.1 9.06 30.2 poverty monitoring) Development -- Poverty strategy and monitoring -- Project Implementation Unit 5. PPF Social Funds & 1.05 2.3 1.05 3.5 Social Assistance Total Project Costs 46.53 100.0 30.00 100.0 Total Financing Required 46.53 100.0 30.00 100.0 2. Key policy and institutional reforms supported by the project: Mainstreaming gender in poverty reduction programs and government budgeting. The causes and impact of poverty are different for men and for women, and planners must understand gender differences in access to and control of economic and social assets in order to create a gender-responsive policy environment. In the context of public expenditures budgeting and program and project formulation, there are many areas in which men and women agree on priorities, or the sequencing of interventions. But, there are also many other areas in which they differ. Therefore, the collection and dissemination of key sex-desegregated poverty indicators, awareness raising at the conununity and national levels, and gender-inclusive budget planning and public expenditure review (sex-desegregated expenditure incidence analysis) are necessary activities to be implemented in the course of the program. Management of poverty data. Collection and management of poverty data for monitoring living conditions entails the collaboration of producers and users of data, i.e., organizations working in various sectors: health, education, integrated social services, community development, employment, agriculture, - 1 0 -  NGOs/CBOs, research institutions and the public and the private sectors. The Social Development Project aims to support the emergence and effective functioning of a network of producers and users of data on the one hand, and to implement a sustainable system for poverty monitoring on the other. By the end of the second phase, the Social Fund Unit will become an autonomous, sustainable national institution, managed according to a well-defined operational manual, and with a specific mandate to support the most vulnerable populations in their efforts to use available resources to improve their standard of living. 3. Benefits and target population: Benefits. The project is expected to generate the following benefits: i) increasing access to and improving the quality of basic social services at the community level; (ii) building and strengthening the capacity of the targeted poor to design and manage development activities that have an impact on their welfare; (iii) building and strengthening the capacity of PFIs and CBOs to work effectively with the poorest and most vulnerable targeted groups; and (iv) strengthening the national capacity to collect and analyze poverty data, monitor poverty trends effectively, and inform policy leading for poverty reduction. T'arget Groups. The target population is mostly poor communities, located in both remote rural areas and urban areas. The SDF aims to target 57 communautes rurales (administrative units consisting of an average of 65 villages each) and seven urban villages during the pilot phase. Special consideration will be given to the vulnerable groups, particularly women, youths, and other socially marginalized groups. The other set of beneficiaries are the PFIs, CBOs and district councils and authorities, whose planning, management, and implementation skills will be strengthened by the project. The Government and its partners have agreed to reach all the poor in the country through a geographic distribution of the regions among the donors. The IDA-financed SDF will be implemented in the regions of Louga, Kolda, Kaolack, and Dakar; the ADB-financed Social Fund will be implemented in the regions of Thies, Dakar, Tambacounda, and Diourbel; and the UNDP-financed Enlarged Poverty Alleviation (EPAP) will be implemented in the Departments of Kedougou, Bambey and Dakar. 1JSAID has a micro-finance project that will target institutions in the regions of Tambacounda, Kolda, Ziguinchor, Thies, and Dakar (Pikine and Rufisque). - 11 -  4. Institutional and implementation arrangements: Management and Coordination of the Poverty-Alleviation Program and Donor support National Program for Poverty Alleviation. The overall Government framework to fight poverty is the National Program for Poverty Alleviation (NPPA) which was prepared on the basis of discussions between the Govemment, the Collectivites Locales, the CBOs and NGOs, the private sector, and donors, responsibility for the NPPA was transferred in October 2000 from the Ministry of Planning to the Ministry of Economy and Finance. The NPPA constitutes the basis of the strategy in the Poverty Reduction Strategy Paper (PRSP). Poverty-alleviation objectives and strategies defined by the NPPA are shared and implemented by several Ministries through, (a) sector-wide programs implemented by sectoral Ministries, such as the 10-year National Health Development Program (1995-2005) supported by the ongoing five-year investment program, the Ten-Year Education and Training Program (2000-2010), and the Rural Infrastructure National Program, and (b) several social funds implemented and coordinated by the Ministry of Family Affairs and National Solidarity (MFSN), such as the present IDA-financed Social Development Fund, the ADB-financed Poverty-alleviation Project, and the UNDP-financed (EPAP). Since 1998 (arrete 3025 of the Prime Minister), the NPPA has been coordinated by the Orientation and Coordination Committee (OCC) which is a large body chaired by the Minister in charge of the NPPA, and includes representatives of all Technical Ministries involved in the NPPA, Local Government associations, and the civil society. Since October 2000 (decret 2000-837), the Ministry of Economy and Finance (MEF) is responsible for the formulation and coordination of the national strategy for Poverty Alleviation -- including the PRSP preparation, while the MFSN is responsible for the operational coordination and implementation of all poverty-alleviation programs. Ministry of Economy and Finances (MEF). For the preparation of the PRSP, the Directorate of Statistics of the MEF is carrying out the baseline data survey and will carry out the update of the country poverty profile, as well as regular poverty assessments in the future to provide information for monitoring implementation of the PRSP. The Cellule de Suivi des programmes de Lutte contre la Pauvrete (CSLP) of the MEF has the responsibility to: (i) ensure synergies and complementarity of all investment programs and their consistency with poverty-reduction objectives; (ii) monitor the progress of the PPA/PRSP through a comprehensive computerized Poverty Information System (PIS) and performance indicators to be set up in the PRSP; (iii) provide information related to poverty-reduction progress to all partners. The MEF will meet once a year for a joint review of the progress of the PPA with all partners including the donors. This yearly joint review will include: (i) progress in the actions carried out by other sector-wide projects in education, health, and rural development as far as poverty alleviation is concerned and (ii) progress in the actions of all social fund and projects coordinated by the MFSN. The Ministry of Family Affairs and National Solidarity will carry out its responsibility of operational coordination of all programs of poverty alleviation through a Structure de Suivi et de Coordination Operationnelle (SSCO), supported by IDA under the project, which will coordinate all the social funds regardless of the origin of funds (IDA, AfDB, UNDP, etc.). During project preparation, the Govemment decided to delegate implementation of the IDA-financed Social Development Fund Project to a new executing agency created by the Government for this purpose, the Social Fund Management Association (SFMA) which operates under the supervision of the MFSN. The delegation is embodied in an Accord de Gestion Subsidiaire between the MEF and the new SFMA. The Development Credit Agreement between the Government and IDA is complemented by a Project Agreement between the Government and the SFMA. It wag agreed during negotiations that the - 12 -  MEF and SFMA will enter into an agreement (Protocole d'Accord) to clarify the use by the MEF of the MIS and other resources provided by the SFMA from IDA funds under this Project. The SSCO will monitor the implementation by the SMFA of the IDA-financed Social Development Fund Project, as well as the other social funds, through a specific module of the PIS and the Agency's MIS. The MFSN will meet once a year with donors to review the progress of all programs under the supervision of the MFSN. SDF Management The Social Fund Management Association (SFMA). The implementation agency of the IDA-financed SDF will be the SFMA, created and registered in November 9, 2000 (Registration No 10386), as an autonomous agency with the status of a non-profit association under the Law 68-08, following the AGETIP model. The Association will be composed of: * the General Assembly (GA) which consists of representatives of four Ministries (MFSN, MEF, MP and MJ) involved in poverty alleviation, of Collectivites Locales, and civil society. During negotiations the Government provided assurances that the composition of the GA will be extended to include representatives of other Ministries in charge of investment programs that address poverty reduction. * the Social Fund Management Unit (SFMU) comprising high-level professionals in the fields of community-driven development and micro-finance, recruited on a competitive basis from the private sector market under procedures conforming to with World Bank guidelines. General Assembly of the SFMA. The GA of the SFMA will be the "Managing BoardiConseil d'Administration" of the Association. It will be chaired by the Minister in charge of the operational coordination of the programs of poverty alleviation, and will have the responsibility to: (i) approve the Manuals of Procedures (MOPs) for the management of the funds; (ii) jointly review, with the SDF donors, the progress on implementation of the Operation Plan and Budget (OPB) for the previous year; (iii) discuss and approve the OPB submitted by SFMU for the following year; and measure the progress of the project on the basis of the long list of performance indicators in the MOPs, and the short list in the Development Credit Agreement; (iv) recruit and evaluate the General Director of the SFMU. Social Fund Management Unit. The SFMU will be accountable to the GA (Managing Board), although this Board will have no influence on SFMU decisions between the two annual reviews by the Board. The SFMU will be made up of four distinct functioning sub-units. Components I and 3 will be implemented through the Commnunity Development Support Unit (CDSU) while component 2 will be implemented through the Micro-Finance Support Unit (MFSU). The Information, Monitoring, and Evaluation Unit (IMEU) and the Financial and Administrative Unit (FAU) in charge of accounting and personnel, will complement the SFMU. The SFMU will manage the Special Account. The Central SFMU (CSFU) will be responsible for the regional branches (RFMU). The RFMU will be expected to act as a technical arm of the Regional Development Agency (RDA) for poverty alleviation. All national and regional units will be staffed with out-sourced professionals having the relevant skills in each area of expertise, recruited by the GD according to procedures acceptable to the Bank. The SFMU will operate on the basis of the following principles: (a) transparency, simplicity, and flexibility; (b) execution by PFIs and CBOs, eventually with the assistance of NGOs, through contractual arrangements resulting from fair and transparent selection; (c) stakeholder/beneficiary participation which must be gender inclusive; (d) monitoring and evaluation of the performance of - 13-  SFMiUs and partners' to enable implementation of corrective measures; and (e) replicability. The four- main components that will be managed by the SFMU are: (i) improve access to social services and basic infrastructure; (ii) improve ability to access credit; (iii) build CBO management capacity; and (iv) develop the poverty-reduction management system, through the following management arrangements: a) Access to social services and basic infrastructure. The strategy to improve the above-mentioned access is to provide small grants (called Social Development Grants -- SDGs) to communities for financing micro-projects (MPs) proposed and implemented by targeted communities. The SFMU /CDSU will have the overall responsibility for the coordination and implementation of the component. It will be supported by the technical assistance from an institution (possibly an NGO) in nation-wide, urban/rural, and multi-sector conmmunity development, to be selected on a competitive basis and in place at project start up the responsibilities coordinated by the SFMU are listed below. They are detailed in a specific module of the Operation Manual, along with the criteria and processes for submitting, appraising, financing, executing, and monitoring and evaluating the communities' MPs. * the Managing Board will have the responsibility of defining the targeting criteria and listing of targeted eligible communities and the eligibility criteria for grants to sub-projects under the SDF, and evaluating the progress of the component; * the Directorate of Statistics (DS) will be responsible, (under the CSFU), for the technical preparation of the draft list of targeted communities on the basis of the criteria mentioned above; * the SDSU/RFMU will be responsible for informing the targeted communities about the opportunities provided by the SDF and the procedures to access and manage the financial resources (including the specific module of the operational manual, the standard forms for preparing a micro-project, and grant application for the procurement of works, goods, and services financed by the grant, and reporting on the progress of the MP). The SDSU/RFMUJ will also be responsible for approving the appraised MP, transferring the grant to the community bank account for approved MPs , and monitoring the execution of the MPs by the communities beneficiaries of grants; * the Commurities will be responsible for the preparation and implementation of the MPs, including the management of grants, the procurement of works, goods, and services included in the MPs and reporting on the completion of the MPs; * A Technical Committee at the Department level, composed of representatives of the Local Governments/Communaut&s Locales; will be responsible for appraising the MPs submitted by the eligible communities on the basis of the pre-determined criteria; * NGOs and/or Technicians will be responsible for providing technical support to the Communities under contracts for services defined in the MPs. A specific Operation Manual for making grants to MPs, acceptable by IDA, will be prepared by the SFU and submitted to IDA before negotiations. b) Access to Micro-Finance The Micro-Finance Support Unit (MFSU) will be established to performn all activities under the micro-finance component. While it will operate within the framework of the Social Fund Management Unit, the MFSU will be completely distinct from the CDSU, both in terms of institutional structure as well as staff. The MFSU staff should be made up of at least three high-level professionals including one micro-finance expert with a very good knowledge of the Senegalese micro-finance industry, one expert in training, and one expert in monitoring and evaluation. The MFSU will be supported by the technical assistance from an institution specialized in institution building of PFIs, including training by experts, to be selected competitively and to be in place at project start up. A specific module of the Operation Manual will govern implementation of this component. Funds dedicated to this component are named the Social Development Credit (SDC). The strategy for the SDC will be two-fold: - 14 -  (i) the MFSU will work via established PFIs that meet the eligibility criteria defined in Annexes 2 and 16. Partner micro-finance organizations will be selected on a competitive basis to enter into an agreement with the SFMU to provide financial services to poor communities for income-generating activities using their own funds. The MFSU will not provide any line of credit to selected partner financial institutions given the high level of liquidity that exists in the micro-finance industry in Senegal. In addition, several current initiatives provide lines of credit to PFIs, including PMA (Fund for agricultural loans), Fonds Suisse-Senegalais, Fonds Belge-Senegalais, AfDB's poverty-alleviation project and the Dyna Enterprises funded by USAID. UNDP has a line of credit for ACEP (a major microfinance network) while Caisse Fran aise is planning to set up another credit line in the coming months. The SDC will support "social intermediation" activities by PFIs through a grant mechanism that will cover the costs of outreach and providing information to targeted groups and communities by PFIs, including training in establishing and managing solidarity groups in association with an PFI. The vast majority of micro-finance interventions operate at a very low professional level. Insufficient competence has been identified in the areas of: govemance, intemal control, managing growth, and financial information management. Support for other identified deficiencies will be provided on demand. The PFI will remain absolutely independent as far as its procedures and policies are concemed. Continued assistance to the PFI will be subject to institutional performance and full justification of the use of previous support. (ii) in poorest areas where no regular PFI can be enticed to operate, the SDC will finance group IGAs according to the following arrangements: * A community-based organization (or groups within it) will propose an IGA, most likely promoted through an NGO, supported by a business plan, and a commitment to provide at least 10% of the cost, of which at least 5% will be in cash. * Upon approval, the SFMU will provide training, capacity building, and equipment (if necessary) for creation and/or strengthening of the group's Savings and Credit Association (SCA) or village bank, which will mobilize the required cash and in-kind contributions to start the IGA, and open an account in a licensed financial intermediary. An implementing agency will be responsible for providing technical assistance to the CBO in managing the IGA and meeting its obligations, as well as for reporting, the cost of which may be borne implementing by either the implementing agency as promoter or by the SDC. If no financial intermediary is sufficiently near by or willing to participate, the implementing agency will also handle transactions. * The CBO will sign an agreement with the SFMU, the financial intermediary and the implementing agency to recover the cost of the IGA investment. The financial intermediary will be responsible for financial aspects of monitoring and recovery of "the loan" against a fee built into the amount. * IGA Investment. The SMFU will provides a grant (the SDC) for procurement (usually through an implementing agency) of the necessary equipment, construction, and initial inputs (as in the case of normal SDF projects), and certify completion and commissioning of the investment. * Implementation and Recovery. The CBO will carry out the IGA, utilizing its cash contribution for initial cash on hand, setting aside sufficient income for operating costs and maintenance, and making cost-recovery loan payments into its account at the financial intermediary. Additional training and capacity building may be provided, both for operation of the IGA and management of the SCA, either through the implementing agency or through additional requests to SDC. * Capitalization of SCA and Subsequent Lending. Upon completion of the required payments, the accumulated funds will be released to the SCA for it to use for lending to members (in groups or as individuals), maintenance and upgrading of the IGA, future IGAs and other uses. Groups that have established a good track record of payment into their financial intermediary accounts may be able to obtain additional credit from the intermediary in the future or to "graduate" their SCA into a licensed - 15-  savings and credit cooperative. c) Capacity building of Vulnerable Groups and CBOs. The CSFU/SDG, through the RFMU, will have the overall responsibility for building capacity of the program beneficiaries including CBOs, NGOs, Local Governments, and private firms. Capacity building activities managed by the RFMU will be implemented in the areas targeted under component 1, and will include: dissemination of information, training, establishing local networks and building operational capacity. The MOP outlines the implementation principles of the se activities. d) Poverty-Reduction Management System. The responsibility for monitoring and evaluation of the NPPA/PRSP will be under the CSLP. M&E activities related to NPPA/PRSP will be based on information provided by a global computerized web-based Poverty Management Information System (PMIS) to be developed under the Project. The objective of the PMIS will be to: (i) provide decision makers (including in the Ministries of Family Affairs, Education, Health, Rural Development, ) at the central, regional, and local levels with relevant updated and detailed information on the poverty status of the population; (ii) provide the same decision makers with information on the perception of poverty by the poor. The difficulties the poor face in trying to improve their situation and to access Govemment services. In parallel, the SMFA will develop the Management Information System for the Social Fund (SF-MIS), which will be totally compatible with the PMIS and designed to be able to cover all Social Funds in the country, regardless of the origin of funds. It will operate under the responsibility of the IMEU and cover the information needs of the SMFU and the SSCO in the Ministry of Family Affairs and National Solidarity to support the Ministry's decision making process for operational coordination. The objective of the SF-MIS will be to: (i) track all information related to the inputs supplied by the Social Funds and all other social sectors; (ii) develop cross-analysis between inputs and outputs for management decision-making; (iii) provide the poor (and all other beneficiaries) with relevant information related to the delivery of Govemment inputs and their measurable impacts of these inputs. The management of the MIS will make necessary the out-sourcing of the provision of a large range of information, to include building partnerships with: (a) communication specialists including the media and journalists; and (b) NGOs to oversee project implementation at the local level, alert the management unit about any emerging problems, and synthesize the lessons leamed from implementation experience for wider dissemination. Financial Management, Financial Reporting, Auditing Arrangements (see Annex 15) Financial management system: Sound financial management systems will be installed at all levels necessary to ensure that all project expenditures are recorded and reported based on the project's financial information needs. These systems will comply with the World Bank's operational policies and procedures (OP/BP 10.02). At the present project preparation stage and with regard to the project activities and implementation arrangements, the levels at which the accounting systems will be installed are: (i) the CSFU; (ii) the RFMU; (iii) the PFIs; and (iv) the communities. The CSFU will have overall responsibility for the project's financial management system. It will be equipped with a computerized financial management system, including: general accounting, cost accounting, budgeting, contract management, and physical progress monitoring. This will enable keeping track of and reporting on all the project's expenses by source of funds, expenditures categories, activities, and beneficiaries. But since the SFMU will be created as an autonomous agency that should become sustainable by the end of the first phase, its own financial situation should be looked at very closely. Therefore, in addition to the project's financial statements, the CSFU's financial management system will be capable of preparing the SFMU's own financial statements according to the laws and regulations related to its legal statutes. At the RFMU level, an appropriate financial management system will be installed. It will - 16 -  enable keeping track of and reporting on the project's and SFMU's transactions at the regional levels. All records at the regional levels will be consolidated at the central level. The selected PFIs in the micro-finance component should be able to provide all the financial information needed on their savings and credit activities. The selected institutions will have a strong and viable financial situation to ensure that the resources received from the project are safeguarded. Therefore, specific selection criteria will be defined to ensure that these requirements are met (see Annex 2). The financial management capacities of the communities will be strengthened as part of the project's a ctivities. This will help ensure transparent financial management of the grants and a viable sustainable financial situation of the income-generating activities, in which the communities will be involved under the micro-finance component. The manual of administrative, financial, and accounting procedures for the project was developed and will be taken into account in the design of the project's overall financial management system. Financial reporting: The project will prepare quarterly Project Management Reports (PMRs), each of which will: (i) set forth actual sources and applications of funds for the Project, both cumulatively and for the period covered by said report, and projected sources and applications for funds for the six-months period following the period covered by said report; (ii) show separately expenditures financed out of the proceeds of the Credit during the period covered by said report and expenditures proposed to be financed out of the proceeds of the Credit during the six-month period following the period covered by said report; (iii) describe physical progress in Project implementation, both cumulatively and for the period covered by said report; and explain variances between the actual and previously forecast implementation targets; and (iv) set forth the status of procurement under the Project and expenditures under contracts financed out of the proceeds of the Credit, as at the end of the period covered the report. In addition to these quarterly PMRs, annual financial statements will be prepared for the project and for the SFMUJ as an autonomous agency. The annual financial statements of the PFIs involved in the micro-finance component will also be required to evaluate the continuous viability of their financial situation. Auditing: The accounts of the project including those for the Special Account will be audited for each fiscal year as well as the annual financial statements of the PFIs involved in the micro-finance component and the SFMU's own annual financial statements. The auditors will be independent and acceptable to IDA. TIhe audit reports will need to be acceptable to IDA will and be submitted not later than six months after the end of each period audited. D. Project Rationale 1. Project alternatives considered and reasons for rejection: The SDF project targets the poorest population living in geographically isolated villages and in urban areas. The project aims to build capacity within these groups in order to improve their access to basic social services, management of their own development, and access to micro-finance. In addition, the project will improve in-country capacity of poverty management systems. The project will respond to the Poor people's demand for social services by enabling them to sub-contract directly with service providers, either among the NGOs or in private sector: the poor will thus be able to identify, plan, and implement their own projects. Furthermore, the project will provide opportunities national and decentralized levels of govenmments to collaborate with NGOs/CBOs and the local private sector for the delivery of basic infrastructure and social services, while simultaneously building the social capital of targeted poor groups. - 17 -  The project will be implemented by the Social Fund Management Unit (SFMU) to be created as an autonomous agency. It will be staffed with service contractors. Project oversight will be the responsibility of SFMA under the Ministry in charge of coordination of the NPPA. The SFMU will operate along the following principles: (a) transparency, simplicity, and flexibility; (b) execution by NGOs, CBOs, and the private sector ('faire-faire" approach) to ensure the decentralized and target-specific nature of the activities; (c) stakeholders/beneficiaries participation ; (d) supervision and monitoring by an autonomous project unit to enable the implementation of corrective measures; and (e) replicability. The rationale for the adoption of the SDF approach is as follows: (i) Traditional top-down projects with a centralized management structure have not proven to be an effective mechanism to implement demand-driven projects, a concept which is at the core of the over-arching capacity building aim of this project. The specific needs of more vulnerable sub-sections of the community can only be met through a grass-root participatory mechanism. (ii) The project component I (access to basic community social services and infrastructure) will introduce an innovative approach to community capacity building: that of community based sub-contracting with NGOs and the private sector for project implementation. This is a break from past projects where intermediaries (such as NGOs) between the SDF and ultimate beneficiaries have been the focus of capacity-building efforts and have absorbed much of the gain in terms of capacity building that comes from exposure to project management. The SDF will ensure that adequate training and support is given directly to the beneficiaries to allow them to gain the most from the experience. (iii) The social assessment (Annex I 1) emphasizes that a striking characteristic of poor villages is their strong independence and reluctance to become dependent on the Government for the fulfillment of their needs. The independent structure of the SDF and the mechanism of direct community contracting provides the opportunity for communities to build their capacity to manage their own development needs, without funneling the efforts through the Government bureaucracy. (iv) The micro-finance component of the project has been thoroughly considered for its importance for poverty alleviation in Senegal. The social assessment findings (Annex 1 1) and the presence of a substantial number of PFIs and smaller SCAs in the country are testimony to the strong demand for credit for income-generating activities. Moreover, lack of access to credit is an important characteristic that differentiates poorer and more vulnerable groups from more advantaged groups. The project aims to expand the credit network to these groups by providing incentives to credit providers to expand their target clientele. The recommendations of the Quality Enhancement Review have been incorporated into the design of this component, so that the SDF will contract out all activities of this component to eligible PFIs and SCAs. (v) The AGETIP structure as an alternative: The AGETIP was considered inappropriate as the structure for project implementation. Firstly, projects implemented through this structure do not respond to the variety of needs that arise from a demand-driven approach. Secondly, the structure does not facilitate a participatory approach which regard to project design and implementation. This is crucial to meeting the project objective of capacity building for vulnerable groups. Thirdly, AGETIP supports Government schemes in rural areas, working on a premise that the Government strategy is an accurate representation of the reality and priorities. The project aims to target specifically the groups that have been marginalized by this very process. Hence it is imperative that the mechanism used is a new one, and that it espouses the concept of participation and capacity building aimed at giving communities the ability and means to control - 18-  their own needs. Keeping the above issues in mind the project has been designed with a phased approach, and it will be implemented through a SDF, managed by a unit that will function independently of the Government structure. Why an APL? A framework for the devolution of management of community-based projects to the district and decentralized levels is needed for the long term. The method of "learning by doing" which is highly advocated in the SDF project, and gradual involvement of people at the district and local levels should prove to be very successful, especially in emphasizing the comnmunity demand-driven approach. This learning mode will be finalized in an APL format as we will agree on the outline of a ten-year program, while building on the events and stock taking of the learning processes mid-way. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue j Project (PSR) Ratings {__ _ _ _ _ _ _ _ _ _ _ _ _ _ (Bank-financed rojects onil) Implementation Development Bank-financed Progress (IP) Objective (DO) Social/population -- Senegal HRDP IHealth & Population S S (completed) Basic Education -- Senegal Literacy Project: priority HS HS Women HRDP2/ Education V HS S (Completed) Education Quality for All Health -- Senegal Health SIP S S Health -- Senegal Endemic Diseases Project U S Poverty/Health -- Senegal Community Nutrition Project S S Agriculture -- Senegal National Rural Infrastructure Project Other development agencies AfDB Poverty Alleviation Project NDF Poverty Alleviation Project UNDP Local Investment Funds EU Micro-realizations/ Decentralization IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The project design reflects lessons learned from donor and national experiences with social funds as well as from Bank's experience with other social investment funds. The following are the most relevant lessons leamed. - 19-  Lesson 1: Clear objectives and consistency with national development strategies are essential for the SDF needs, therefore, to maintain clear and limited objectives. Efficiency of operational policies and procedures, as well as overall program effectiveness, depend upon clear understanding of the SDF role in an overall development strategy framework. It is important for Government to clarify SDF's role in the context of national policies for social development, poverty reduction, and decentralization. Furthermore, it is important to remember that SDF is designed to finance and oversee implementation of sub-projects and not to make policies, and that while SDF managers and staff may bring important perspectives to inform policy discussions, participation and coordination of all actors relevant to such discussions (including the public, private, and NGO/CBO/MIS sectors) should be assured. Lesson 2 (cf. ICR HRDP1): A well tailored role for NGOs under Govermment contract can prove very effective and may be both less expensive and more participatory than direct Govemment implementation at the community level. This is especially relevant in the context of decentralization of service delivery and state disengagement from service provision and infrastructure management. Lesson 3 (cf. ICR HRDP 1): Central coordination units in Ministries may be sources of delay and rivalry rather than serving to facilitate the collaboration, implementation, and disbursement efficiency. Further more, when the project ends, the PCU management or technical capacity is dispersed, leading to little gain in institutional capacity or sustainability. Such units are not sustainable and decrease institutionalization of aid management capacity. Lessons learned from the implementation of AGETIP I and II and the ongoing female literacy project have also been considered. Lesson 4: Experience from similar projects financed by the Bank and other donors show that the success of such projects derives from: (i) the design and implementation scheme based on community-felt needs; (ii) building and investing in local organizations for operation and maintenance; and (iii) ensuring community ownership, transparency, and accountability. Govenmment commitment, sustainable funding mechanisms, and attention to cost recovery are also key elements for designing a sustainable intervention. Lesson 5: Social fund interventions do not work where policies are biased against the poor. The interventions have to be an integral part of the Govermnent's willingness and commitment to help the poor. The commitment described in para. 4 below suggests that this willingness and commitment are present in this case. Lesson 6: Lessons learned from other Bank-supported Social Funds show that sustainability is a critical issue. Sub-project sustainability requires a participatory process that seeks open consultation with cornmunities on their needs and priorities and involvement of the community throughout the project cycle to secure commitment to sub-project operation and maintenance To achieve success, sub-project sustainability requires coordinated support from both the central and local govemments, with clearly defined roles and responsibilities for each. Lesson 7: Bank experience with other Social Funds shows that the development of key institutional characteristics is a necessary condition for success of any project. The project will place emphasis on the institotional characteristics that are considered most critical for the success of the SDF: operational efficiency, transparency, and accountability, which are bolstered by clear resource-allocation criteria and operational guidelines, reliable independent audits and evaluations, an effective MIS, and vigilant - 20 -  supervision by extemal financial agencies; clear and simple procurement and disbursement procedures; a proper targeting mechanism; and improved attention to monitoring and evaluation activities, including beneficiary assessments. Lessons drawn from the Bank's global experience are incorporated in Phase 1 of the Social Fund, such as the emphasis on community-based development; independence of the Social Fund; no direct lending by the Social Fund; and conformity to "Best Practice" in micro-finance in order to ensure long-term financial and institutional suatainability. 4. Indications of borrower commitment and ownership: The Government of Senegal has prepared a National Poverty Alleviation Program associated with an Action Plan for Women's Development. It has stated its willingness to develop a 'faire-faire" approach with the NGOs, CBOs, and private firms for the implementation of the NPPA. Ihe borrower, under the leadership of the Planning Directorate, has shown full commnitment to the SDF project. A preparatory committee with representatives from the Ministry of Economy and Finances, Ministry of Social Development, Ministry of Family Affairs and National Solidarity, the Ministry of Youth, NGOs, and CBOs has been functioning for 15 months. The committee is assisted by two consultants who are producing studies that are into project design process. This committee has produced an official program that was submitted to the Bank for funding, along with the TORs for the proposed studies. These initiatives have all been funded by the borrower, a clear indication of commitment and interest. In March 1999, the committee organized a one-week workshop on the logical framework of the project. The committee has followed the completion of the project preparation and approved technical documents prepared within that framework. Also the Government has coordinated other projects in the country, so that the SDF Project will play a complementary role to other existing Projects, like the Quality E,ducation for All Project, the rural development project, literacy project, and other social fund projects funded by other donors. 5. Value added of Bank support in this project: The Bank has always spearheaded living condition assessments in Senegal. No full assessment has been done since the Bank assessment in 1994. An update of the poverty profile was done in 1995, based on survey results and studies conducted under previous Bank projects, such as PAGD, PDRHI. The Bank has capitalized on its experience with social funds in other countries as well as on country-specific knowledge gained through the implementation of AGETIP I and II, the Female Literacy Project, and the Nutrition Community Project. The Bank is in a strategic position to help the Government mobilize resources and launch initiatives for sustainable poverty alleviation, E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): O Cost benefit NPV=US$ million; ERR = % (see Annex 4) * Cost effectiveness O Other (specify) The scope and mix of the selected sub-projects will be determined directly with the participatory involvement of the CBOs and the various mechanisms ensuring participation of excluded groups in community decision-making. - 21 -  In addition to the genuine demand expressed by poor communities or individuals, and organizations of the poor, a sub-project must be evaluated under objective criteria shared by all partners of the SDF to ensure an equitable process for approval and implementation. In practice, it is necessary to simplify the justification techniques. Theoretical soundness needs to be balanced against operational constraints, human resources limitations, time constraints, and the intensity of the social demand. Even if the sub-projects are all geared toward reducing poverty, their efficiency will be variable as also their duration, economic dimension, and the costs and expected benefits. Since resources to be allocated are finite, it is wise for beneficiaries to articulate their choices around their competing expressed needs and objective evaluation of the possible interventions. The essence of an economic analysis is to compare all of the benefits of the proposed action to all the costs with a project said to pass a benefit-cost test if the sum of all the benefits is greater than the sum of all the costs. Such an analysis is seriously defective without monetary values for the social gains and services affected by a proposed action. Thus, the methods for evaluating sub-projects are just mere instruments of decision-making. Nonetheless, there are other criteria of social dimensions to be considered when evaluating the value of sub-projects. Quantitative factors must be substituted as much as possible for subjective judgments on the choice to be made to avoid oversimplification. In the economic analysis, information has to be collected, organized, and used to make an objective decision. Any project will be analyzed with sets of criteria reconciling three ultimate objectives: - To have better investment or fund-allocation decision; * To alert CBOs on the risks taken and the exclusion of alternative opportunities implied by their choice; and D To guide decision makers in minimizing negative outcomes from sub-optimal resources allocations. To render operational the economic approach, a sample of IEC, Community Infrastructure, and income-generating sub-projects format is provided based on typical cost, market, and impact analysis. As illustration, estimates in health and education areas are given based on data from projects already completed in similar conditions in Senegal (Annex 4). Cost-benefit analysis In the case of income-generating activities, cost-benefit analysis is more desirable. Its accuracy will depend on data available to the beneficiaries or their contractors. A format is provided in the operation manual. In the context of the SDF, cost-benefit analysis is required for income-generating sub-projects, the financial flows, rate of returns, and the cash-flow analysis must be computed rigorously in the analysis in addition to the analysis of the sub-project environment. Given the scope of sub-projects envisaged under the SDF and the social dimension of their goals, the evaluation criteria must be kept as simple as possible, by not using the discount rate method, which is an instrument that takes into account the temporal dimension of money, and to put into the analysis and the decision making the real opportunity cost of capital. Finally, the use of the following criteria are recommended: * The flows of net benefits before and after funding * The net results and the cash flows forecasted If the funds requested are beyond specific levels as shown in Annex 4, simple analysis should be completed - 22 -  with computation of the payback period of the funds invested, the return on capital, and cost-benefit ratio. Cost-effectiveness analysis This analysis is recommended for the basic social services and community infrastructure as well as the capacity-building component. The reason is that problems arise when one tries to place monetary value on social benefits. In health, education, and other social services, the attempt will be perilous and very much biased by judgment, values, or non-autonomous revealed preferences. Thus, instead of benefit, desirable outcomes can be summarized as effectiveness which will be expressed in physical terms or scale of quality. Thus, effectiveness stands as a second best proxy for estimating the fulfillment of the goals sought. For a cost-effectiveness analysis, the table of financial flows must provide the costs and benefits for each period. Some of the benefits could be expressed in monetary terms. However, they must be complemented by non-monetary benefits expressed in physical units or qualitative scale. The effectiveness could be expressed according to criteria set beyond monetary values, particularly in social projects. It represents the level of reaching the objectives of the sub-project. The assessment of that level is based on qualitative terms, taking into account the baseline situation and the importance that the decision-makers put on the qualitative advantages of the project. Where possible, social benefits that are intangible must be transformed or provide with a close social substitute that one can quantify and value easily. In the absence of directly quantifiable indicators, an assessment based on the following is made: * Ratios of cost and physical benefit * Indirect performance indicators and/or derived representative of the desired effects on the characteristics of poverty, and the resources of the Government and communities. Financial (see Annex 5) NPV=US$ million; FRR= % (see Annex 4) Financial risk analysis This analysis determines the ultimate financing decision. Experience with similar projects within the Bank portfolio as well as others show that communities generally prioritize investments which can be expected to have high rates of returns. The SDF operational manual will include simple financial eligibility criteria, particularly for income-generating sub-projects. The risk analysis may lead to the calculation after project worth criteria of critical values of the sub-project, i.e., the values of variation for key variables. A critical value is the value when reached given an unfavorable trend, will render the project unprofitable in relation to its objectives. This critical value is determined in relation to one criterion, the other things being held constant. The percent variations can be compared to determine the most critical values, for the sub-project is the most sensitive to and show how robust the project is in a changing environment and unexpected situations. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR= % (see Annex 4) Cost-recovery - 23 -  Beneficiaries will be expected to contribute to the cost of sub-projects. A detailed financial analysis was finalized during the appraisal mission, including assessment of operational and maintenance arrangements based on the sample of sub-projects analyzed in the economic analysis. From the analysis of the environment and the foreseen participation of beneficiaries, some level of cost-recovery is envisioned at a rate of around 5 Fiscal Impact: The fiscal analysis impact applies to costs and benefits identifiable before and after project which could be tied to fiscal flows. These concem: * The impact on public resources * The costs-recovery in social and community activities undertaken by the central and decentralized public entities * Collected revenues in terms of taxes, spared losses, and saved expenses by public entities in direct relation to the sub-project. Generally, a direct quantification can be done on: * Taxes on revenues of new employees v Partial or integral costs recovered 9 Indirect taxes deriving from induced activities of sub-projects * Local direct and indirect taxes