CONFORMED COPY
GRANT NUMBER H348-AF
Project Agreement
(Expanding Microfinance Outreach and Improving SustainabilityProject)
between
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
MICROFINANCE INVESTMENT AND SUPPORT FACILITY FOR AFGHANISTAN LTD.
Dated March 10, 2008
- 1 -
GRANT NUMBER H348-AF
PROJECT AGREEMENT
AGREEMENT dated March 10, 2008, (“Project Agreement”), entered into between INTERNATIONAL DEVELOPMENT ASSOCIATION (“Association”) and MICROFINANCE INVESTMENT AND SUPPORT FACILITY FOR AFGHANISTAN LTD. (either the “Project Implementing Entity” or “MISFA” indistinctly) in connection with the Financing Agreement (“Financing Agreement”) of same date between the ISLAMIC REPUBLIC OF AFGHANISTAN (“Recipient”) and the Association. The Association and the Project Implementing Entity hereby agree as follows:
ARTICLE I—GENERAL CONDITIONS; DEFINITIONS
1.01.The General Conditions (as defined in the Appendix to the Financing Agreement) constitute an integral part of this Agreement.
1.02.Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Financing Agreement or the General Conditions.
ARTICLE II—PROJECT
2.01.The Project Implementing Entity declares its commitment to the objectives of the Project. To this end, the Project Implementing Entity shall carry out the Project in accordance with the provisions of Article IV of the General Conditions, and shall provide promptly as needed, the funds, facilities, services and other resources required for the Project.
2.02.Without limitation upon the provisions of Section 2.01 of this Agreement, and except as the Association and the Project Implementing Entity shall otherwise agree, the Project Implementing Entity shall carry out the Project in accordance with the provisions of the Schedule to this Agreement.
ARTICLE III— TERMINATION
3.01.For purposes of Section 8.05(c) of the General Conditions, the date on which the provisions of this Agreement shall terminate is twenty(20) years after the date of this Agreement.
ARTICLE IV —REPRESENTATIVE; ADDRESSES
4.01.The Project Implementing Entity’s Representative is the Managing Director of MISFA.
4.02.The Association’s Address is:
International Development Association
1818 H Street, NW
Washington, DC20433
United States of America
Cable:Telex:Facsimile:
INDEVAS248423(MCI) 1-202-477-6391
Washington, D.C.
4.03.The Project Implementing Entity’s Address is:
Microfinance Investment and Support Facility for Afghanistan, Ltd.
Street 13, #436
Wazir Akbar Khan
Kabul
Islamic Republic of Afghanistan
AGREED at Kabul, Islamic Republic of Afghanistan, as of the day and year first above written.
INTERNATIONAL DEVELOPMENT ASSOCIATION
By
/s/ Paul Edwin Sisk
Authorized Representative
MICROFINANCE INVESTMENT AND SUPPORT FACILITY FOR AFGHANISTAN, LTD.
By
/s/ Amjad Ali Arbab
Authorized Representative
SCHEDULE
Execution of the Project
Section I.Implementation Arrangements
A.Institutional Arrangements
1.MISFA shall at all times:
(a)(i)be governed in accordance with its Memorandum of Association and Articles of Association; and
(ii)not assign, amend, abrogate or waive itsMemorandum of Association and Articles of Association or any provisions thereof if, in the opinion of the Association, such assignment, amendment, abrogation or waiver will materially and adversely affect MISFA’s performance or the implementation of the Project;
(b)maintain a Board of Directors with appropriate experience and qualifications,satisfactory to the Association, comprising microfinance experts and representation from the public and private sector, which shall have general oversight over the Project;
(c)retain staff, including a Managing Director, with appropriate experience and qualifications, satisfactory to the Association,all of whom shall have been appointed on merit and in a transparent and competitive manner;
(d)retain, throughout the implementation of the Project, an independent external auditor satisfactory to the Association, with terms of reference acceptable to the Association, to carry out annual audits of MISFA’s Project accounts, interim unaudited financial reports and Financial Statements; and
(e)keep the Association promptly informed of changes in membership of either the Board of Directors (including its chairman), the management team referred to in sub-paragraph (c) above, and/or the appointment of MISFA’s external auditors, and ensure that any such changes will be made in accordance with the procedures set forth in MISFA’s Articles of Association, and in terms acceptable to the Association.
- MISFA shall:
(a)carry out, and cause the MFPs to carry out, the Project in accordance with the procedures, principles and practices set forth in the Operations Manual and the Environmental Assessment Framework;
(b)exercise its rights under each MFP Sub-Loan Agreement in such manner as to protect the interests of the Recipient, the Association and its own, and to accomplish the purposes of the Financing;
(c)ensure, and cause the MFPs to ensure, that in carrying out the Subprojects the Microcredit Recipients comply with the provisions of the Environmental Assessment Framework, and the Anti-Corruption Guidelines; and
(d)neither assign, nor amend, abrogate, or waive the Operations Manual and the Environmental Assessment Framework or any provisions thereof if, in the opinion of the Association, such assignment, amendment, abrogation or waiver will materially and adversely affect MISFA’s and the MFPs’ performance or the implementation of the Project or Subprojects.
3.MISFA shallmaintain, throughout the implementation of the Project, a communications unit, headed by a qualified communications specialist with experience in printed, website and media campaigns, to be provided with sufficient resources and competent staff in adequate numbers, and under terms of reference satisfactory to the Bank; which unit shall be responsible for the design and carrying out of MISFA’s communication and public awareness campaign aimed at: (i) increasing the public’s and donors’ acceptance, interest and support to the microfinance sector; (ii) facilitating people’s access to microcredits; and (iii) improving communication and information sharing between/among MISFA and MFPs.
B.Anti-Corruption
The Project Implementing Entity shall ensure that the Project is carried out in accordance with the provisions of the Anti-Corruption Guidelines.
C.Provision of Concessional Financing to MFPs for the financing of Subproject through Microcredits to eligible Microcredit Recipients
1.In carrying out the Project,MISFA shall enter into MFPs Sub-Loan Agreements with MFPs, in order for MISFA to relend the proceeds of the Concessional Financing to MFPs for the MFPs to, in turn, provide Microcredits to Microcredit Recipients for purposes of carrying out Subprojects. The MFPSub-Loan Agreements shall have terms and conditions satisfactory to the Association, including the following:
(a)the principal amount to be relent to MFPs under MFPs Sub-Loans and out of the proceeds lent to MISFA through Subsidiary Loans under the Concessional Financing shall:(i) be denominated in local currency;and (ii) be charged a service fee on the principal amounts withdrawn and outstanding from time at the rate sufficient to cover the MISFA’s cost of borrowing plus a reasonable spread acceptable to the Association;
(b)the obligation of MFPs to relend to Microcredit Recipientsthe proceeds so made available under the MFPs Sub-Loans for the financing of eligible Subprojects through the provision of Microcredits on the terms and conditions acceptable to the Association,including those set forth in their respective operational policies and the Attachment to this Schedule;
(c)the obligation of MFPs to carry out, and ensure that the Microcredit Recipients carry out, the Subprojects with due diligence and efficiency and in conformity with appropriate administrative, technical, financial, economic, environmental and social standards and practices acceptable to MISFA and the Association (including the provisions of the Environmental Assessment Framework, the Anti-Corruption Guidelines and the Recipient’s applicable laws and regulations);
(d)MFPs’ undertakings to: (i) enable the Recipient, the Association and/or MISFA to inspect their Microcredit operations and any relevant records and documents related thereto; and (ii) prepare and furnish to the Recipient, the Association and/or MISFA all such information as the Recipient, the Association or MISFA shall reasonably request regarding the foregoing (including MFPs’ financial statements regarding the use and administration of funds provided under MFPs Sub-Loans, which statements shall have been audited by independent auditors acceptable to the Association, in accordance with terms of reference and consistently applied auditing standards acceptable to the Association); and
(e)the right of MISFA to:(i) suspend the respective MFPs Sub-Loan Agreements upon failure by an MFPs to perform any of its obligations under its respective MFP Sub-Loan Agreements or to comply with any legal and regulatory requirements applicable to its operations; and (ii) terminate, and/or accelerate any outstanding amounts under the MFPs Sub-Loans, if the MFPs’ right to use the proceeds of any such MFP Sub-Loan shall have been suspended pursuant to subparagraphs (i) hereof for a continuous period of sixty (60) days or more.
2.Unless the Association shall otherwise agree, the MFPs Sub-Loan Agreements shall be made exclusively to MFPs which satisfy, and continue to satisfy, the eligibility criteria set forth in the Operations Manual, which shall include the following:
(a)the MFPs shall be independent legal entities, duly registered and licensed under the laws of the Recipient;
(b)the MFPs shall have managerial capacity and business plans for institutional development satisfactory to MISFA and the Association, and be operating pursuant to investment and lending policies acceptable to MISFA and the Association, including a proper and transparent accounting system and regular financial audits in accordance with consistently applied accounting standards acceptable to the Association, in a manner adequate to reflect the operations, resources and expenditures related to the their respective MFPs Sub-Loans;
(c)the MFPs shall be willing and able to:(i) submit regular monitoring reports on their microcredit portfolios to MISFA (including aggregate amount of financing, and the sources thereof during the period covered by each such report), and/or(ii) submit to the monitoring and evaluation of their portfolios and performance by MISFA and the Association, or by any third party appointed by MISFA and/or the Association for that purpose, as the case may be;
(d)the MFPs shall have sound and balanced credit risk programs acceptable to MISFA and the Association, and be financially sustainable, or in the path to financial sustainability, as judged in light of their business plansfor institutional development and the progress made towards self-sufficiency; and
(e)the MFPs shall maintain policies and procedures adequate to enable the Recipient, the Association and/or MISFA (either jointly or separately) to monitor and evaluate their Microcredits portfolio, the respective Subprojects and MFPs’ financial sustainability in accordance with indicators acceptable to the Association.
- With respect of the payment of interest or other charges on, or repayment of, principal made available to MFPs under MFPs Sub-Loan Agreements, MISFA shall:
(a)open and thereafter maintain a separate account on its books in accordance with the financial and administrative policies and procedures set forth in the Operations Manual;
(b)upon receipt of each such payment or repayment, credit the same to the said separate account; and
(c)utilize all amounts so credited to the said separate account, to the extent they are not yet required to meet MISFA’s repayment obligations to the Recipient under the Subsidiary Loans, exclusively to finance its operating costs acceptable to the Association, and/or additional Subprojects, in accordance with the terms and conditions of the Operations Manual,the Environmental Assessment Framework, and the applicable provisions of this Schedule and the attachment thereto.
D.Safeguards
MISFA shall, by no later than six (6) months after effectiveness, prepare and adopt an Environmental Assessment Framework setting out, among other things: (i) procedures to screen and process Subprojects for significant social and environmental impacts; (ii) key principles for social and environmental management of Subprojects, and/or the mitigation of any impact thereof; (iii) procedures to ensure that these principles and procedures are properly applied; and (iv) guidelines for capacity building and monitoring, all in accordance with the Recipient’s applicable lawsand regulations (including the Law on the Preservation of Afghanistan’s Historical and Cultural Heritages –Official Gazette No. 828, 1383/02/31).
Section II.Project Monitoring, Reporting and Evaluation
A.Project Reports
1.MISFA shall monitor and evaluate the progress of the Project and prepare Project Reportsin accordance with the provisions of Section 4.08 of the General Conditions and on the basis of the indicators agreed with the Association. Each such Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the Recipientnot later ninety (90) days after the end of the period covered by such report for incorporation and forwarding by the Recipient to the Association of the overall Project Report.
2.By not later than one year from the date of effectiveness of this Agreement, MISFA shall have designed and implemented, or caused the MFPs to implement, a social performance monitoring system based on the data collected during the household baseline study carried out by MISFA in mid-2007, provided the Recipient has established a poverty line.
3.During the period of implementation of the Project, MISFA shall:(a) carry out a minimum of two (2) casestudybased reports (at the first and third year of implementation of the Project), with terms of reference satisfactory to the Association,addressing the mainstreaming of gender concerns and/or any existing gender barriers/disparities for women to access microcredit financing; and (b) upon completion thereof, promptly share each such reports with the Association.
B.Financial Management, Financial Reports and Audits
1.The Project Implementing Entity shall maintain a financial management systemand prepare financial statements in accordance with consistently applied accounting standards acceptable to the Association, both in a manner adequate to reflect the operations and financial condition of the Project Implementing Entity, including the operations, resources and expenditures related to the Project.
2.Without limitation on the provisions of Part A of this Section, MISFA shall prepare and furnish to the Recipient not later than forty five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association for incorporation and forwarding by the Recipient to the Association as part of the overall interim unaudited financial reports.
3.The Project Implementing Entity shall have its financial statements referred to above audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association. Each audit of these financial statements shall cover the period of one (1) fiscal year of the Project Implementing Entity. The audited financial statements for each period shall be furnished to the Association not later than six (6) months after the end of the period.
Section III.Procurement
All goods, works and services required for the Project and to be financed out of the proceeds of the Financing shall be procured in accordance with the provisions of Section III of Schedule 2 to the Financing Agreement.
ATTACHMENT TO SCHEDULE
Eligibility of Subprojects and
Terms and Conditions of Microcredits
I.Subprojects Eligibility Criteria
MFPs shall provide Microcredits to eligible Microcredit Recipients for the financing of Subprojects provided that such Subprojects meet the selection criteria set forth in the MFPs’ own policies and proceduresand the MFPs Sub-Loan Agreements, and the following requirements:
(a)Subproject proposals shall be technically, commercially and financially viable, and shall have been designed and appraised with due regard for public health, safety and environmental standards, acceptable to the Association;
(b)Subproject proposals should have undergone an environmental screening and be fund eligible according to the Environmental Assessment Framework and consistent with the Recipient environmental regulations (including chance-finds procedures contemplated in the Law on Preservation of Afghanistan’s historical and Cultural Heritages –Official Gazette No. 828, 1383/02/31);
(c)Subproject shall not require involuntary land acquisition, nor involve the resettlement of any Displaced Persons. MFPs shall ensure that any land required for any Subproject, which shall have been acquired by,or otherwise made available to, an eligible Microcredit Recipient, has been so acquired, or made available, on a voluntary basis; and
(d)Subproject proposal shall be ineligible for financing if:
(i)it involves significant conversion or degradation of critical natural habitat, including, but not limited to, any activities within the boundaries of the Ab-i-Estada Waterfowl Sanctuary, the Ajar Valley (Proposed) Wildlife Reserve, the Dashte-Nawar Waterfowl Sanctuary, the Pamir-Buzur (Proposed) Wildlife Sanctuary, the Bande Amir National Park, and the Kole Hashmat Khan (Proposed) Waterfowl Sanctuary;
(ii)might significantly damage non-replicable cultural property, including, but not limited to, any activities that affect: (A) the monuments of Herat (e.g. the Friday Mosque, the ceramic tile workshop, the Musallah complex, the Fifth Minaret, the Gawhar Shah, Ali Sher Navaii and Sha Zadehah Mausolea) and Bamiyan Valley (e.g. Fudali, Kakrak, Shar-i Ghulghular and Shahr-i Zuhak); (B) the archeological site of, and monuments in,Ai Khanum, Ghazni, Lashkar-i Bazar and Surkh Kotal; (C) the Minaret of Jam; (D) the Mosque of Haji Piyada/Nu Gunbad; and (E) the Stupa and Monastery of Guldarra; and
(iii)directly or indirectly requires or involves:(A) political campaign material or donations therefor; (B)the acquisition of weapons (including, but not limited to, mines, guns and ammunition); (C) the procurement and/or use of chainsaws, logging equipment, pesticides, herbicides and other chemicals; (D) motorized extraction of groundwater; (E) any activities on areas considered dangerous due to security hazards or the presence of unexploded mines or bombs; (F) any activities on land or affecting land that has disputed ownership, tenure or user rights; (G) any activity that will support the production and trade of any products or activities deemed illegal, or subject to phase-outs or bans under the Recipient’s laws and regulations and/or international agreements and conventions (e.g. radioactive material, wildlife and derived products regulated under CITES, alcoholic beverages, unbounded asbestos fibers, certain pharmaceuticals, certain pesticides and herbicides, product containing polychlorinated biphenyls, ozone depleting substances, etc.); (H) gambling activities, casinos or equivalent enterprises; (I) fishing activities using electroshock techniques or explosive materials; (J)production and trade of woods and/or forestry products from unmanaged forest; (K) production, storage, transportation, trade or use of hazardous chemicals; and (L) harmful and exploitative forms of forced or child labor.