Nepal - Cottage And Small Industries Project : Credit 1191 - Credit Agreement - Conformed

OFFICIAL CREDIT NUMBER 1191 NEP DOPCUMENTS Development Credit Agreement (Cottage and Small Industries Project) between. KINGDOM OF NEPAL and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated C1 , 1982 CREDIT NUMBER 1191 NEP DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated c', 1982, between KINGDOM OF NEPAL (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) The Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) Part A of the Project will be carried out by the Nepal Rastra Bank with the Borrower's assistance, and as part of such assistance, the Borrower will make available to the Nepal Rastra Bank part of the proceeds of the Credit as hereinafter provided; (C) The Borrower intends to contract from the United Nations Development Programme a grant (hereinafter called the UNDP Grant) in an amount equivalent to approximately two million dollars ($2,000,000) to assist in financing part of the Project on the terms and conditions set forth in an agreement (hereinafter called the UNDP Project Agreement) to be entered into between the Bor- rower and the United Nations Development Programme, including a provision appointing the International Bank for Reconstruction and Development as executing agency for such agreement; and (D) The Association is willing to make the Credit available upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Association and the Nepal Rastra Bank; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated June 30, 1980, with the same force and effect as if they were fully set forth herein, subject, however, to the following modifications thereof (said -2- General Conditions Applicable to Development Credit Agreements of the Association, as so modified, being hereinafter called the General Conditions): (a) The following subparagraph is added to Section 2.01: "14. The term 'Project Agreement' has the meaning set forth in paragraph (c) of Section 1.02 of the Development Credit Agreement." (b) The words "or the Project Agreement" are added after the words "the Development Credit Agreement" in Section 10.02. Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "NRB Act" means the Nepal Rastra Bank Act, 2012 (1955) of the Borrower, as amended to the date of this Agreement; (b) "NRB" means the Nepal Rastra Bank, established and operating pursuant to the NRB Act; (c) "Project Agreement" means the agreement of even date herewith between the Association and NRB, as such agreement may be amended from time to time, and such term includes all schedules to the Project Agreement and all agreements supplemental to the Project Agreement; (d) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and NRB pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement; (e) "ADBN" means the Agricultural Development Bank of Nepal established and operating pursuant to the Agricultural Development Act, 2024 (1967) of the Borrower, as amended to the date of this Agreement; (f) "Participating Credit Institutions" means the Nepal Bank Limited, Rastriya Banijya Bank and ADBN, and such other credit -3- institutions as the Borrower, the Association and NRB may from time to time agree; (g) "CSI" means a cottage or small industry, whether privately or cooperatively owned, with fixed assets (including land, buildings, plant and equipment) of less than eight hundred thousand rupees (Rs 800,000) and with fixed cost per job of no more than Rs 12,000 after the granting of a Sub-loan to it, which is engaged or intends to engage in, inter alia, manufacturing, agro-industry, handicraft production or industrial service activities; (h) "Market Agent" means a private concern involved directly in the organization of CSI production; (i) "Performance Contractor" means a Market Agent engaged by TPC to provide training and commercial services to CSI clusters in the Project Area; (j) "Trading Company" means an incorporated company esta- blished under the Borrower's Laws by private exporters, traders and manufacturers of CSI products to, inter alia, procure and distribute raw materials for CSI; (k) "Emporium" means the Borrower's Cottage Industries and Handicraft Sales Emporium; (1) "Investment Enterprise" means an enterprise which is a CSI or a Market Agent or a Performance Contractor or a Trading Company, and shall include Emporium when it procures cotton yarn or equipment, or acquires finished cotton textiles for resale, under the Project; (m) "Project Area" means the districts of Manang, Kaski, Lamjung, Gorkha, Syangja and Tanahu in the Borrower's administra- tive zone of Gandaki, and the districts of Kathmandu, Bhaktapur, and Lalitpur in the Borrower's administrative zone of Bagmati; (n) "Sub-project" means a specific project in the Project Area to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan made or proposed to be made by a Partici- pating Credit Institution to such an Investment Enterprise; (o) "Sub-loan" means a loan made or proposed to be made by a Participating Credit Institution to an Investment Enterprise for a -4- Sub-project in the Project Area in accordance with the provisions of this Agreement; (p) "Rupees" and "Rs" means the currency of the Borrower; (q) "TPC" means the Borrower's Trade Promotion Centre; (r) "CGC" means the Credit Guarantee Corporation Private Limited, a corporation established and operating under the laws of the Borrower; (s) "CIDB" means the Borrower's Cottage Industry Development Board established under the Borrower's Development Board Act, 2013 (1955); and (t) "ISC" means the Borrower's Industria. Services Centre. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equi- valent to five million seven hundred thousand Special Drawing Rights (SDR 5,700,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Associa- tion, for: (a) expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for Parts B, C and D of the Project and to be financed out of the proceeds of the Credit; and (b) the equivalent of the amounts paid (or, if the Associa- tion shall so agree, to be paid) by NRB to a Participating Credit Institution on account of withdrawals made by an Investment Enterprise under a Sub-loan to meet the reasonable cost of goods and services required for the Sub-project in respect of which the withdrawal is requested; provided, however, that no withdrawal -5- shall be made in respect of a Sub-loan unless (i) the Sub-loan, if it exceeds the equivalent of $25,000, shall have been approved by the Association, or (ii) the Sub-loan shall be in an amount not exceeding the equivalent of $25,000 for which the Association shall have authorized withdrawals from the Credit Account. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Credit allocated to Parts B, C and D of the Project, shall be governed by procurement procedures of the Borrower and its agencies responsible for the implementation of such Parts of the Project which shall be satisfactory to the Association. Section 2.04. The Closing Date shall be December 31, 1985, or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Association a service charge at the rote of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Service charges shall be payable semiannually on May 15 and November 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each May 15 and November 15 commencing May 15, 1992, and ending November 15, 2031, each installment to and including the installment payable on November 15, 2001, to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be One and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall cause NRB to carry out Part A of the Project, and shall carry out or cause to be carried -6- out Parts B, C and D of the Project through its Ministry of Industry, Ministry of Commerce and Supplies and NRB, all with due diligence and efficiency and in conformity with appropriate economic, administrative, financial and industrial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall cause NRB to perform in accordance with the pro- visions of the Project Agreement and the Subsidiary Loan Agreement all the obligations therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources necessary or approp'iiate to enable NRB to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (c) In order to carry out Part A of the Project, the Bor- rower shall relend to NRB such amounts as shall be withdrawn from the Credit Account under Category (1) of the table set forth in paragraph 1 of Schedule 1 to this Agreement under a Subsidiary Loan Agreement to be entered into between the Borrower and NRB containing terms and conditions satisfactory to the Association, including those set forth in Part B of the Schedule to the Project Agreement, and the provision that the Borrower shall bear the foreign exchange risk. (d) The Borrower shall exercise its rights under the Sub- sidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of Part A of the Project, and except as the Association shall otherwise agree, the Borrower shall not assign, nor amend, abro- gate or waive the Subsidiary Loan Agreement or any provision thereof. Section 3.02. Without any limitation or restriction upon any of its other obligations under the Development Credit Agree- ment, the Borrower shall: (a) pay or make arrangements for payment into the CSI Credit Guarantee Scheme established by NRB pursuant to Section 2.03 (a) of the Project Agreement an initial contribution of about 2 million rupees (Rs2,000,000) and shall, as and when required, -7- pay additional amounts on an annual basis so that the capitali- zation of the said Scheme is maintained at no less than 10% of the guarantees outstanding in any given fiscal year; (b) make arrangements satisfactory to the Association for the provision of funds to cover the cost of expenditures required for the implementation of Parts B, C and D of the Project; (c) (i) make available or cause to be made availabe to ADBN on terms and conditions satisfactory to the Association, all amounts required by ADBN to cover the portion of Sub-loans which shall not be refinanced out of the CSI Refinance Fund established pursuant to Section 2.02 (a) of the Project Agreement, including an initial amount of two million rupees (Rs 2,000,000) for ADBN's first year of operation under the Project, and (ii) finance the costs of any arrears arising out of ADBN's operations under the Project; and (d) prior to any transfer pursuant to Section 2.03 (b) of the Project Agreement, make appropriate arrangements to ensure that CGC is adequately capitalized and adopts operating policies and procedures, satisfactory to the Association, to enable CGC to operate the CSI Guarantee Scheme established by NRB pursuant to Section 2.03 (a) of the Project Agreement and to provide effective guarantees for term loans for CSI in the Borrower's territory. Section 3.03. In order to assist the entities responsible for the carrying out of Parts B, C, and D of the Project, the Borrower shall, as and when needed, employ or cause to be employed consultants whose qualifications, experience and terms and condi- tions of employment shall be satisfactory to the Association. Section 3.04. In order to assist in carrying out Part B (i) of the Project, the Borrower shall cause TPC to: (a) (i) maintain a Cottage Industry Export Development Division within its organization, with suitably qualified and experienced staff in adequate numbers, with all key positions to be filled by March 15, 1982; (ii) maintain a Cottage Industries Export and Product Development Fund with policies and procedures satisfactory to the Association; and (iii) prepare and furnish to the Association for its approval by not later than May 31 of each year beginning with May 31, 1982, an annual action program for the fiscal year beginning July 15 of such year; -8- (b) establish a center for information, merchandising, product adaptation, communication and trade in New York, New York, U.S.A. by not later than July 31, 1982, and another such center in Frankfurt, Federal Republic of Germany, by not later than July 31, 1983, each with suitably qualified and experienced staff; and (c) furnish to the Association for its prior review and approval the draft of any performance contract proposed to be entered into between TPC and a Performance Contractor and which is to be financed out of the proceeds of the Credit. Section 3.05. (a) The Borrower shall, by not later than March 15, 1982, reactivate CIDB with policies, operating proce- dures, financial rules, organizational chart and staff satis- factory to the Association, in order to enable CIDB to, inter alia, carry out Part B (ii) of the Project. (b) The Borrower shall cause CIDB to prepare and furnish to the Association for its approval by not later than May 31 of each year beginning with May 31, 1982, an annual action program for the fiscal year beginning July 15 of such year. Section 3.06. The Borrower shall cause Emporium: (a) to establish a cotton yarn, equipment and textile fund with policies and procedures and with staff satisfactory to the Association to assist it in procuring cotton yarn and equipment, and acquiring finished cotton textiles for resale, in the Project Area; (b) to prepare and furnish to the Association for its approval an action program for its cotton yarn, equipment and textile operations for its first year of operations, and by not later than May 31 of each year for the fiscal year beginning July 15 of such year; and (c) to appoint a suitably qualified and experienced pro- curement advisor. Section 3.07. (a) For the purposes of coordinating, monitor- ing and supervision of the Project, and except as the Association -9- shall otherwise agree, the Borrower shall maintain the Coordinat- ing Committee established for purposes of the Project and composed of the Secretary of the Borrower's Ministry of Industry, repre- sentatives of the Borrower's National Planning Commission, Ministry of Commerce and Supplies, and Ministry of Finance, and representatives of NRB, CIDB, TPC, Emporium, ISC and the private sector. (b) In order to assist ISC in the carrying out of Part D (i) of the Project, the Borrower shall cause the other Project implementation agencies to furnish data, reports and other information at reasonable intervals to ISC, as shall be required by ISC to prepare and furnish to the Coordinating Committee referred to in paragraph (a) of this Section, quarterly financial and operational reports in respect of the Project. Section 3.08. The Borrower shall hold discussions from time to time with the Association on its policies concerning cottage and small industries. Section 3.09. (a) The Borrower shall take all action which may be required on its part for NRB and the Participating Credit Institutions (i) to apply the interest rates set forth in the Schedule to the Project Agreement, (ii) to maintain and implement uniform interest rates for all CSI loans by Participating Credit Institutions (except loans for CSIs in remote areas defined by the Borrower and satisfactory to the Association), as provided in Section 2.04 (b) of the Project Agreement, and (iii) to implement any changes in interest rates or spreads required pursuant to the provisions of paragraph (b) of this Section. (b) The interest rates set forth in the Schedule to the Project Agreement shall be jointly reviewed at least annually by the Borrower, the Association and NRB and, after such review, such interest rate adjustments shall be made as will be necessary to ensure that (i) the minimum interest rate for CSI loans made by Participating Credit Institutions remains positive in real terms in relation to medium term inflation projections and at a level consistent with the interest rates applicable to all term loans made to industries in the Borrower's territory, and (ii) the spread to NRB and the Participating Credit Institutions resulting from any such interest rate adjustment shall remain, in respect of Subloans refinanced under the Project, at least at the levels set forth in the said Schedule. - 10 - Section 3.10. (a) Except in respect of Part A of the Project, the Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit against hazards incident to the acquisi- tion, transportation and delivery thereof to the place of use or installation, and, for such insurance, any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project. Section 3.11. (a) The Borrower shall furnish to the Associa- tion, promptly upon their preparation, the plans, specifications, reports, contract documents, and work and procurement schedules for Parts B, C and D of the Project, and any material modifica- tions thereof or additions thereto, in such detail as the Associa- tion shall reasonably request. (b) The Borrower shall: (i) maintain or cause the Project executing agencies to maintain records and procedures adequate to record and monitor the progress of Parts B, C and D of the Project (including the cost thereof and the benefits to be derived there- from), to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) enable the Association's accredited representatives to visit facilities and construction sites included in the Project and xamine the goods financed out of the proceeds of the Credit anc any relevant records and documents; and (iii) furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning Parts B, C and D of the Project, the cost thereof and, where appropriate, the benefits derived and to be derived therefrom, the expenditure of the proceeds of the Credit, and the goods and services financed out of such proceeds. (c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution of Parts B, C and D of the Project, the costs thereof and the benefits derived and to be derived therefrom, the performance by the Borrower and - 11 - the Association of their respective obligations under the Develop- ment Credit Agreement and the accomplishment of the purposes of the Credit. (d) Upon the award of any contract for goods or services to be financed out of the proceeds of the Credit allocated to Parts B, C and D of the Project, the Association may publish a descrip- tion thereof, the name and nationality of the party to whom the contract was awarded and the contract price. Section 3.12. The Borrower and the Association shall, within eighteen months of the Effective Date, undertake a joint review of the implementation of the Project. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained separate records and accounts adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations, resources and expenditures, in respect of Parts B, C and D of the Project, of the departments or agencies of the Borrower, responsible for carrying out Parts B, C and D of the Project or any part thereof, including, without limitation to the foregoing, separate accounts reflecting all expenditures under Category (3) of the table in paragraph 1 of Schedule 1 to this Agreement on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure. (b) The Borrower shall retain, or cause to be retained, until one year after the Closing Date, all records (orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure and shall enable the Association's accredited respresentatives to examine such records. (c) The Borrower shall: (i) cause the records and accounts referred to in paragraph (a) of this Section for each fiscal year to be audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than nine months after the end of each - 12 - such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested, including, without limitation to the foregoing, an opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this Section as to whether the proceeds of the Credit withdrawn from the Credit Account on the basis of statements of expenditure have been used for the purpose for which they were provided; and (iii) furnish, or cause to be furnished, to the Association such other information concerning said records and accounts and the audit thereof as the Association shall from time to time reason- ably request. ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) NRB shall have failed to perform any covenant, agreement or obligation of NRB under the Project Agreement or the Subsidiary Loan Agreement; (b) the NRB Act shall have been further amended or sus- pended, abrogated, repealed or waived in such a way as to materially and adversely affect the ability of NRB to carry out the covenants, agreements and obligations set forth in the Project Agreement; (c) an extraordinary situation shall have arisen which shall make it improbable that NRB will be able to perform its obliga- tions under the Project Agreement; (d) the Borrower shall have taken any action for the dis- solution or disestablishment of NRB or for the suspension of its operations; (e) (i) subject to subparagraph (ii) of this paragraph, the right of the Borrower to withdraw the proceeds of the UNDP Grant made to the Borrower for the financing of the Project shall have been suspended, - 13 - cancelled or terminated in whole or in part, pursuant to the terms of the UNDP Project Agreement. (ii) subparagraph (i) of this paragraph shall not apply if: (A) such suspension, cancellation or termination is not caused by the failure of the Borrower to perform any of its obligations under such Agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: (a) any event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower and NRB; and (b) any event specified in paragraph (b) or (d) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and NRB; (b) the CSI Refinance Fund and the CSI Refinance Unit referred to in Sections 2.02 (a) and (c) respectively of the Project Agreement shall have been established and NRB shall have paid in the initial capital contribution to the Fund, all in accordance with the provisions of the said Sections; - 14 - (c) the CSI Credit Guarantee Scheme referred to in Section 2.03 (a) of the Project Agreement shall have been established pursuant to the provisions of the said Section and the initial capital contribution shall have been made pursuant to the pro- visions of Section 3.02 (a) of this Agreement; (d) NRB shall have issued the instructions referred to in Section 2.09 (a) of the Project Agreement to at least two Partici- pating Credit Institutions which shall have satisfied the staffing and training requirements set forth in Part A of the Schedule to the Project Agreement; and (e) the UNDP Project Agreement shall have been duly signed by the parties thereto. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by NRB, and is legally binding upon NRB in accordance with its terms; and (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and NRB and is legally binding upon the Borrower and NRB in accordance with its terms. Section 6.03. The date 'ili ( is hereby speci- fied for the purposes of Section 12.04 of the General Conditions. Section 6.04. The pro, sions of Section 5.02 of this Agree- ment shall cease and terminate on the date on which the Develop- ment Credit Agreement shall terminate or on a date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Secretary, Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. - 15 - Section 7.02. The following addresses are specified for the purpose of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance His Majesty's Government of Nepal Kathmandu Nepal Cable address: Telex: ARTHA 249 NEP Kathmandu, Nepal For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. KINGDOM OF NEPAL By Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President South Asia - 16 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Refinancing of up to 80% of Sub-loans under Part A of the Project: (a) exceeding $25,000 1,770,000 100% of amounts equivalent per refinanced by Sub-loan NRB (b) not exceeding 2,210,000 100% of amounts $25,000 equiva- refinanced by lent per Sub- NRB loan (2) Vehicles, equipment and 100% of for- raw materials for Part B eign expendi- of the Project, for: tures; 100% of local ex- (a) CIDB 490,000 expenditures (ex-factory); (b) TPC 70,000 and 80% of other local (c) Emporium 80,000 expenditures (3) Staff salaries and 310,000 50% related expenditures under Parts B and D of the Project (4) Performance contract fees 270,000 100% - 17 - Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (5) Equipment, consultants' 450,000 100% of for- services, staff salaries eign expendi- and other operating costs tures for TPC centers abroad (6) Unallocated 50,000 TOTAL 5,700,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. The disbursement percentages have been calculated in com- pliance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Credit decreases or increases, the Association may, by notice to the Borrower, increhse or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Association. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (i) payments made for expenditures prior to Novem- ber 24, 1981; and (ii) expenditures in respect of Emporium under Cate- gories 1 and 2 (c) of the table in paragraph 1 - 18 - above, unless and until Emporium shall have com- plied with the provisions of Section 3.06 of this Agreement. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other expendi- tures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as, in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. - 19 - SCHEDULE 2 Description of the Project The Project is designed to assist the Borrower in increasing employment, output, and exports from cottage and small industries in the Project Area, by improving private, public and banking services. Part A: A program by NRB to refinance and guarantee Sub-loans granted or made by Participating Credit Institutions to Investment Enter- prises for Sub-projects. Part B: Strengthening of public and private sector managerial, technical, marketing and other general and specific subsector services for CSI, through provision of staff, training, equipment, vehicles, facilities and advisory services: (i) Under TPC, for establishment and operation of programs for: (a) assisting exporters in product adaptation, produc- tion techniques, and organization; (b) improving links between exporters and importers, including inter alia establishment and operation of TPC centers abroad; (c) trade missions and familiarization trips; and (d) extending CSI service networks, mainly in the Gandaki Zone, through Performance Contractors; (ii) Under CIDB, for establishment and operation of: (a) improved CSI training and extension services in the Kathmandu Valley; (b) improved CSI extension services and management of about sixteen subsector development centers in Gandaki Zone; and - 20 - (c) improved CSI services of its Handicraft and Promo- tion Centre; and (iii) Under Emporium: expansion and upgrading of Emporium programs for im- porting and wholesaling of cotton yarn and handloom equipment and procurement and sale of cotton handloom textiles. Part C: Improvement of the credit and operational systems of NRB and the Participating Credit Institutions through: (i) training of staff, and provision of advisory services for the CSI Refinance Fund; and (ii) training of staff to upgrade CSI appraisal and super- vision capabilities of Participating Credit Insti- tutions. Part D: Under ISC: (i) monitoring and evaluation of the Project; and (ii) preparation of proposals for strategies and components for future projects. The Project is expected to be completed by June 30, 1985. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the f day of , 19802.. FOR SECRETARY