Ecuador - Second Small Scale Enterprise Credit Project : Loan 2221 - Project Agreement - Conformed

/ LOAN NUMBER 2221 EC Project Agreement (Second Small Scale Enterprise Credit Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and CORPORACION FINANCIERA NACIONAL Dated , 1983 LOAN NUMBER 2221 EC PROJECT AGREEMENT AGREEMENT, datedc7t,,-,4 e25, 1983, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DWELOPMENT (hereinafter called the Bank) and CORPORACION FINANCIERA NACIONAL (hereinafter called CFN). WHEREAS (A) By the Loan Agreement of even date herewith between Republic of Ecuador (hereinafter called the Borrower) and the Bank, the Bank has agreed to lend to the Borrower an amount in various currencies equivalent to forty million six hundred thousand dollars ($40,600,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that CFN agree to undertake such obligations toward the Bank as hereinafter set forth; (B) Part of the proceeds of the loan provided for under the Loan Agreement will be relent to CFN on the terms and conditions set forth in a subsidiary loan agreement between the Borrower and CFN; and (C) CFN, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of Fopinar Section 2.01. (a) CFN shall carry out the Project described in Section 3.01 (a) of the Loan Agreement, Part A of such Project to be carried out through Fopinar, and shall conduct Fopinar's operations and affairs, with due diligence and efficiency and in conformity with appropriate economic, financial and investment -2- standards and practices, with qualified and experienced manage- ment and in accordance with Fopinar's Statement of Policy and Fopinar's Operating Procedures; (b) For the purposes of carrying out Part A of the Project, CFN shall: (i) maintain a unit to be exclusively in charge of managing Fopinar, such unit to be headed by a manager whose qua- lifications and experience shall always be satisfactory to the Bank; (ii) provide such unit, promptly as needed, with all the funds, staff, facilities and other resources required for the timely execution of the Project; (iii) have Project Appraisal and Supervision Guidelines for Fopinar satisfactory to the Bank; (iv) amend, by not later than December 31, 1982, Fopinar's Statement of Policy and Fopinar's Operating Procedures in a manner satis- factory to the Bank; and (v) carry out, through Fopinar, training courses in industrial project appraisal and supervision techni- ques, whose content shall be satisfactory to the Bank; such training course to be offered by Fopinar, from time to time to the staff of Financial Intermediaries and other entities willing to participate in the Project. (c) For the purposes of carrying out Part B of the Project, CFN shall: (i) prepare and furnish to the Bank, by not later than November 30 of each year, an annual program for providing techni- cal assistance to Small and Micro Scale Investment Enterprises, satisfactory to the Bank; and (ii) carry out such programs in accordance with the applicable provisions of Fopinar's Statement of Policy and Fopinar's Operating Procedures. Section 2.02. In order to assist CFN in the carrying out of Part C of the Project, CFN shall employ consultants whose selec- tion, qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank in accordance with the principles and procedures described in the "Guidelines for the use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. Section 2.03. CFN shall carry out Part C of the Project in accordance with terms of reference and a timetable satisfactory to the Bank. Section 2.04. For purposes of *operating and capitalizing Fopinar, CFN shall maintain the Project Account in Banco Central, under terms and conditions satisfactory to the Bank. -3- Section 2.05. In accordance with and subject to the provi- sions of the Loan Agreement, CFN shall present Investment Pro- jects to the Bank for approval or for authorization for with- drawals to be made from the Loan Account. (a) When presenting a sub-loan (other than a free-limit sub-loan) to the Bank for approval, CFN shall furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Investment Enterprise and of the Investment Project to be financed thereunder (including a description of the expenditures for such Investment Project proposed to be financed by the Financial Intermediary concerned and an appraisal of the Investment Project which shall include its internal economic rate of return) and the proposed terms and conditions of the sub-loan, and such other information as the Bank shall reasonably request. (b) Each request by CFN for authorization to make with- drawals from the Loan Account in respect of a free-limit sub-loan shall contain: (i) a summary description of the Investment Enter- prise and the Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan); (ii) the terms and conditions of such free-limit sub-loan; and (iii) such other information as the Bank shall reasonably request. (c) The amortization schedule applicable to each sub-loan shall provide for an appropriate period of grace of up to three years and, unless the Bank and the Borrower shall otherwise agree: (i) shall not extend beyond 10 years from the date of approval by the Bank of such Investment Project or of authoriza- tion by the Bank to make withdrawals from the Loan Account in respect of such Investment Project, and (ii) shall provide for approximately equal, or gradually increasing, semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal, or gradually increasing, semi-annual, or more frequent, payments of principal. (d) Except as the Bank and the Borrower shall otherwise agree, applications and requests made pursuant to the provisions of paragraphs (a) and (b) of this Section shall be presented to the Bank on or before December 31, 1985. Section 2.06. CFN shall: (a) enter into a Participation Agreement, satisfactory to the Bank, with each Financial Intermediary, such Participation Agreement to govern the terms and conditions of lending by such -4- Financial Intermediary to Investment Enterprises and shall con- tain, inter alia, project appraisal guidelines, supervision pro- cedures, records and reporting requirements, procurement and disbursement procedures, the commitment by such Financial Inter- mediary to employ staff capable of performing satisfactory pro- ject appraisals and supervision, collection and disbursement procedures satisfactory to the Bank under which Banco Central shall act as an agent for CFN, as determined in Section 3.02 (a) (vii) of the Loan Agreement, and the approval procedures for sub-loans by CFN, such procedures to include simplified require- ments for the approval of sub-loans under $150,000 equivalent, such amount to be reviewed and, if necessary, revised from time to time by CFN in agreement with the Bank; (b) make loans out of Fopinar's resources to Financial Intermediaries to finance 90% of sub-loans made by Financial Intermediaries for Investment Projects and cause the Financial Intermediaries to finance not more than 75% of the reasonable cost of Investment Projects that consist of the establishment of a new Enterprise and not more than 85% of the reasonable cost of other Investment Projects, all in accordance with the provisions of this Agreement, the Loan Agreement, the Subsidiary Loan Agree- ment and Fopinar's Statement of Policy; (c) use the proceeds of Fopinar for making sub-loans (as such term is defined in Section 1.02 (i) of the Loan Agreement), whose sum shall be limited to $15,000,000 equivalent per Finan- cial Intermediary; the adequacy of this amount to be reviewed by the Bank and CFN not later than 18 months after the date of this Agreement; (d) exercise its rights under the Participation Agreements in such a manner so as to protect the interests of the Borrower, the Bank and CFN and to accomplish the .purposes of the Loan, and, except as the Bank shall otherwise agree, shall not assign, nor amend, abrogate or waive any Participation Agreement or provision thereof; and (e) calculate the Investment Project's expected internal economic rate of return if the respective sub-loan is equivalent to $200,000 or more, the adequacy of this amount to be reviewed and, if necessary, revised from time to time thereafter by the Bank, in agreement with CFN. -5- Section 2.07. (a) CFN shall charge Financial Intermediaries the annual interest rate set forth in the Schedule to this Agree- ment on the amounts of Fopinar Loans outstanding from time to time. (b) CFN shall cause the Financial Intermediaries to charge on sub-loans the annual interest rate and other charges set forth in the Schedule to this Agreement. (c) The interest rates and other charges referred to in this Section shall be reviewed from time to time and, if neces- sary revised, by CFN in agreement with the Bank. (d) CFN shall provide, as to each Fopinar Loan, that if a sub-loan or any part thereof shall be repaid to the Financial Intermediary in advance of maturity, or, if a sub-loan or any part thereof shall be sold, transferred, assigned or otherwise disposed of for value by the Financial Intermediary, the Finan- cial Intermediary shall promptly repay to CFN the amount of Fopinar Loan corresponding to the sub-loans or parts thereof so repaid in advance or disposed of for value. Section 2.08. (a) CFN undertakes that, unless the Bank shall otherwise agree, it will cause all sub-loans to be made on terms whereby the Financial Intermediary shall obtain, by means of a written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Borrower, the Bank, CFN and the Financial Intermediary including the right of the Financial Intermediary to: (i) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to main- tain adequate records; (ii) require that (A) the goods and ser- vices to be financed out of the proceeds of the Loan shall be suitable for the Investment Project and be purchased at a rea- sonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (B) such goods and services shall be used exclusively in the carrying out of the Investment Project; (iii) inspect, by itself or jointly with representatives of CFN or CFN and the Bank, if the Bank shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and -6- any relevant records and documents; (iv) require that the Invest- ment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and that such insurance cover marine, transit and other hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installa- tion, and that any indemnity thereunder be made payable in a cur- rency freely usable by the Investment Enterprise to replace or repair such goods; (v) obtain all such information as the Bank, CFN or the Financial Intermediary shall reasonably request rela- ting to the foregoing and to the administration, operations and financial condition of the Investment Enterprise and to the bene- fits to be derived from the Investment Project; and (vi) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the sub-loan upon failure by such Investment Enterprise to perform any of its obligations under its contract with the Financial Intermediary. (b) CFN shall, and shall cause each Financial Intermediary to, exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Borrower, the Bank and CFN; (ii) comply with its obligations in respect of the Fopinar Loan made to such Financial Intermediary; and (iii) achieve the purposes of the Project. Section 2.09. CFN shall: (a) furnish, or cause to be furnished to the Bank, at regu- lar intervals, all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Financial Intermediaries, the Fopinar Loans, the sub-loans, the Investment Enterprises, and the Investment Project, and, where appropriate, the benefits to be derived from the foregoing; (b) cause Financial Intermediaries to maintain records and procedures adequate to: (i) record and monitor the progress of the Investment Projects; (ii) identify the goods and services financed out of the proceeds of the Loan and to disclose their use in the Project and the Investment Projects; and (iii) indi- cate the financial condition of the Investment Enterprise; and (c) within six months following the last withdrawal from the Loan Account in respect of the sub-loans or by such later date as the Bank shall request, prepare and furnish to the Bank a -7- report, of such scope and in such detail as the Bank shall rea- sonably request, on the execution and initial operation of the Investment Projects financed by sub-loans, their costs and the benefits derived and to be derived from them, the performance by the Borrower, Banco Central, CFN, the Financial Intermediaries and the Bank of their respective obligations under the Loan Agreement and the Project Agreement and the accomplishment of the purposes of the Loan. Section 2.10. CFN shall enter into the Subsidiary Loan Agreement with the Borrower. Except as the Bank shall otherwise agree, CFN shall not change or fail to enforce such Subsidiary Loan Agreement or any provisions thereof. Section 2.11. CFN shall, at the request of the Bank, ex- change views with the Bank with regard to the progress of the Project and the Investment Projects, the performance of its obli- gations under this Agreement and other matters relating to the purposes of the Loan. Section 2.12. Except as the Bank shall otherwise agree, CFN shall, by not later than November 30 of each year, furnish to the Bank, for review and comment, the proposed annual budget for Fopinar. ARTICLE III Other Covenants Section 3.01. CFN shall maintain procedures and records ade- quate to record the progress of the Project (including its cost and the benefits derived from it) and'to reflect, in accordance with consistently maintained sound accounting practices, the operations of Fopinar. Section 3.02. CFN shall: (a) establish separate financial accounts for Fopinar; (b) have such accounts and financial state- ments (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance with sound auditing principles consistently applied, by inde- pendent auditors acceptable to the Bank as part of the general audit of CFN's accounts and financial statements; (c) furnish to the Bank, as soon as available but in any case not later than five months after the end of each such year, (i) certified copies of Fopinar's financial statements for such year as so audited and -8- (ii) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (d) furnish to the Bank such other information concerning the accounts and financial, statements of Fopinar and the audit there- of as the Bank shall from time to time reasonably request. Section 3.03. The Bank and CFN shall from time to time, at the request of either party, exchange views through their repre- sentatives with regard to the administration, operations and financial condition of Fopinar, and CFN shall furnish to the Bank all such information as the Bank shall reasonably request con- cerning the administration, operations and financ-a1 condition of Fopinar. Section 3.04. CFN. shall promptly inform the Bank of any con- dition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Loan, or the performance by CFN of its obligations under this Agreement or the Subsidiary Loan Agreement. Section 3.05. CFN shall cause each of the Financial Interme- diaries to: (a) retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are made on the basis of statements of expenditure; and (b) enable the Bank's representatives to examine the records referred to in paragraph (a) above. ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effec- tive. Section 4.02. This Agreement and all obligations of the Bank and of CFN thereunder shall terminate on the date on which the Loan Agreement shall terminate. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under Article VI of the General, Conditions. -9- ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, ca- ble, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) For CFN: Corporaci'n Financiera Nacional Apartado No. 163 Quito, Ecuador Cable address: Telex: CORFINAL 2193 CORFIN ED Quito, Ecuador 2444 CORFIN ED Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of CFN may be taken or executed by its General Manager or by such other person or persons as the General Manager shall designate in writing. - 10 - Section 5.03. CFN shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signa- ture of the person or persons who will, on behalf of CFN take any action or execute any documents required or permitted to be taken or executed by CFN pursuant to any provisions of this Agreement. Section 5.04. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Regional Vice President Latin America and the Caribbean CORPORACION FINANCIERA NACIONAL By/ Authorized Representative - 11 - SCHEDULE I. Sub-loans: Size of Investment Enterprises and applicable repayment, terms of, and interest and other charges on, sub-loans. Size of Minimum and Investment Maximum Enterprise Repayment Terms Interest rate Fees A. Micro Scale 2 years and over 15% per annum B. Small Scale 2 to 5 years 15% per annum 2% per annum C. Small Scale more than 5 and 16% per annum 2% per annum up to 8 years D. Small Scale over 8 years 17% per annum 2% per annum II. Fopinar loans Interest and other charges on Fopinar loans. Interest and other charges A. Sub-loans under I.A above 9% per annum B. Sub-loans under I.B above 13% per annum C. Sub-loans under I.C above 13% per annum D. Sub-loans under I.D above 13% per annum INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this A day of 198 . . FOR SECRETARY