SOCIAL FUND PROJECTS: HOW ARE THEY PERFORMING?

September 1998

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The Working Group for the Social Funds Portfolio Review was led by Ishrat Husain (PREM) and comprised Soniya Carvalho (Task Manager, PREM), Tania Barham, Nicholas Burnett, Robert Mattson, William McGreevey (lIDD), Christine Kessides (TWU), Deepa Narayan (ENV), Bikki Randhawa, Khalid Siraj (FSD).

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Foreword

Coming soon ....

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Acknowledgements

This review of the Social Funds portfolio was undertaken in 1996-97 at the request of the Quality Assurance Group (QAG) headed by Prem Garg. The QAG contact for this review was Christopher Walker. The Steering Conunittee for this review comprised Sri-ram Aiyer, Margaret Grosh, Magdi Iskander, Steen Jorgensen, Harinder Kohli, Anthony Pellegrini, Robert van der Lugt, and Peter Watson. John Fitzsimon and Caroline Harper of the lAD team currently reviewing AGETIP project controls shared information, views, and insights. Katrinka Ebbe contributed to the review of community panicipation and demand-orientation in Social Fund projects. Deepali Tewari conducted a review of economic infrastructure components of a subset of Social Fund projects. Comments on the terms of reference or earlier drafts were received from Petros Aklilu, Mahmood Ayub, Jacob Bregman, Gianni Brizzi, Christopher Chamberlin, Zafer Ecevit, Laura Frigenti, Michael Goldberg, Alberto Harth, Frida Johansen, Orner Karasapan, Travis Katz, Qaiser Khan, Kye Woo Lee, Alexandre Marc, Thomas Merrick, Meskerem Mulatu, Robert Picciotto, Suzanne Piriou-Sall, Jeff Ruster, Jennifer Sara, Richard Skolnik, Willem Stroben, Charles Thomas, Ulrich Thumm, Jacques van der Gaag, Christopher Walker, Juliana Weissman, and Guillermo Yepes. Several Social Fund project Task Managers and other Bank staff took time off their busy schedules to be interviewed by the Working Group; they included Jacob Bregman, Hans Binswanger, Tim Campbell, Jay Chaubey, Constance Corbett, Alan Dock, Randa El-Rashidi, Laura Frigenti, Kathryn Funk, Gita Gopal, Abdelghani Inal, Frida Johansen, Qaiser Khan, Montserrat Meiro·Lorenzo, Norbert Mugwagwa, Eileen Murray, Maria Nowak·Przygodzka, Leslie Pean, Max Pulgar· Vidal, Willem Struben, Juliana Weissman, and Mario Antonio Zelaya. Kavita Mathur, and Syllce von Thadden provided research assistance. Alexander Arenas, William Battaile, Craig Clickenger, Kian-Tiong Ho, Charles Mccaskill, Sam Sharata, Nandita Tannan, and Jaime Zaldivar provided the relevant information from the Bank's institutional databases. Maria Paz Felix advised on document processing and lay-out.

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Table of Contents

Acronyms

Definitions

Sununary of Findings and Conclusions

1. Background and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1

ll. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2

m. Overview of the Social Funds Portfolio . .". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5

IV. Performance of the Social Funds Portfolio based onARPP Ratings and "At Risk" Indicators .......................... 9

V. Quality-At-Entry and Implementation Experience ... ; . . . . . . . . . . . . . . . . . . . . .. 15

A. Targeting the Poor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16

B. Community Participation and Demand-Orientation ............................................ 22

C. Sustainability of Subproject Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 28

Economic Infrastructure Components of Social Fund Projects . . . . . . .. 30

Education and Health, Nutrition, and Population Components of Social Fund Projects ...................."........... 34

'Microfinance Components of Social Fund Projects. . . . . . . . . . . . . .. 38

D. Internal Efficiency ...................o,.................... 41

VI. Conclusion: Role of Social Funds, Ensuring Sustainable"-' Outcomes On-the-Ground, and Follow-up Ac;tioDS ..... o,.............. . . . .. 47

Task Managers and Other Bank Staff Interviewed

Background Papers

Selected References

Attachments 1-vn

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AGETIP

ARPP

CGAP

CPC

DO

DIF

FHIS.

Acronyms

Agence d'Execution des Travaux d'Interet Public contre Ie Sous-Emploi (Executing Agency for Public Works for Employment)

Annual Review of Portfolio Performance

Consultative Group to Assist the Poor

Community Project Conunittee

Development Objective

Demand-Driven Investment Fund

Fondo Hondureno de Inversion Social (Honduras Social Investment Fund)

FONCODES Social Development and Compensation Fund (peru)

ICB. International Competitive Bidding

ICR Implementation Completion Report

IEPS Initial Executive Project Summary

IP Implementation Progress

LCB Local Competitive Bidding

OED Operations Evaluation Department

O&M Operations and Maintenance

PAR Project Audit Report

PCR Project Completion Report

PIP Portfolio Improvement Program

PIU Project Implementation Unit

QAG Quality Assurance Group

SAR Staff Appraisal Report

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DermitioDS

SOCIAL FUNDS Social Funds are quasi-financial intermediaries that channel resources, according to pre-cietermined eligibility criteria, to small-scale projects for poor and vulnerable groups proposed, designed, and implemented by public or private agencies, such as local governments or NGOs, or by the community groups themselves. Individual subprojects cover, for example, social infrastructure, social services, economic infrastructure, and/or microfinance activities. Unlike conventional Bank projects in which each component is designed up front and implementing agencies pre-identified, the individual subprojects that a Social Fund fmances are not detennined at the time the Social Fund is established; only the criteria for subproject eligibility are laid down upfront. Social Funds, as defmed here, are in-country agencies that possess two unique features:

AGETIPs

SOCIAL FUND­RELATED PROJECfS AND DEMAND­DRIVEN INVESTMENT FUNDS

(i) the agencies are vested with investment programming powers, i.e., the powers to select/reject subproject proposals that they solicit from public organizations, private organizations, and/or community groups based on pre-determined criteria rather than themselves identifying, designing, and implementing the subprojects; and

(ii) the agencies enjoy special status in terms of, for example, an independent legal persona, control over the subproject approval process, andlor exemptions from prevailing public sector rules and regulations relating to issues such as civil service salary schedules, procurement, and/or disbursement.

AGETIPs are a special type of Social Fund. While in typical Social Funds, the Social Fund agency selects eligible subproject proposals and channels financing to them, AGETIP management - in addition to performing both of these functions -also assumes responsibility for executing the selected subprojects on behalf of the subproject sponsoring agency (typically, the municipality). The subproject sponsoring agency surrenders authority for the execution of the subproject to AGETIP management until delivery of the completed works. Thus, AGETIP management assumes more functions than does the typical Social Fund agency; Social Funds "select and fund projects" whereas AGETIPs "select, fund, and execute projects" .

Other differences between (non-AGETIP) Social Funds and AGETIPs are that Social Funds aim to reach rural and urban areas while AGETIPs - at least the early ones -- were directed exclusively at urban areas, and Social Funds are typically located in the Prime Minister's office, President'S office, or in a line Ministry whereas AGETIPs are commercially-oriented, not-for-profit private associations usually governed by national NGO or "private association" laws. .

Projects that meet only one - not both - of the Social Fund criteria discussed above are called Social Fund~related Projects or Demand-driven Investment Fund (DIFs). Social Fund·related projects are defined as those projects which support agencies with special status but which do not vest in the agency investment programming powers, i.e., the powers to reject/select subproject proposals received. The Mauritania Urban Infrastructure and Pilot Decentralization project, the Benin Urban Rehabilitation and Management project, and the Togo (Lome) Urban Development project are AGETIPs not classified in this review as Social Fund projects because in each of these three cases, AGETIP management does not wield invesanent programming powers - it simply executes subprojects selected by the

municipalities and presented to it for execution. Projects which do not create new project units with special status but vest the investment programming function (the power to reject/select subprojects) in existing local government institutions are called DIPs. In these projects, the local government is responsible for soliciting and financing subproject proposals from community groups and other private and/or public organizations rather than itself identifying, designing, and implementing the subprojects. A tabular classification of the above projects is presented below.

Characteristics

Special Status of Project Unit •

lnvesUDCDl Programming Functions vested in Project Unit •

Project Unit Executes Works

Classification of Projects

Social Funds AGETIPs (Non-AGETIP)

x x

x x

x

Demand-driven Other Social InveStment Funds Fund-related

Projects

x

x

x

Note: * indicates defining characteristics of Social Funds for this repon.

Summary of Findings and Conclusions

(i) Social fund projects have become a high-profile and rapidly growing instrument in the BankS assistance program. As of end-fiscal 1996, the World Bank had approved 51 Social Fund projects (43 free standing projects and eight components of broader projects) in 34 countries amounting to commitments of over US $1.3 billion. Of the 51 Social Fund projects, 40 were active at end-fiscal 1996 amounting to a portfolio of about US $1.2 billion.

(ii) Twelve of the 40 active Social Fund projects in the portfolio were found to be "at risk". These twelve "at risk" Social Fund projects amount to 30 percent of the total number of active Social Fund projects or 21 percent of the total commitments for active Social Fund projects at end-fiscal 1996. The proportion of the Social Fund portfolio "at risk" in terms of number ,of projects is rougbly similar to that of the total Bank portfolio (around a third). In terms of conunitments, the Social Fund portfolio fares better with 21 percent of Social Fund commitments "at risk" compared with 31 percent of commitments "at risk" Bankwide. To the extent that Social Fund projects often respond to conflict, post-conflict, or other economic emergency situations, their ratings should be interpreted accordingly.

(iii) A majority of the Social Fund projects in the portfolio have long term objectives, i.e., they aim at delivering services or building local capacity for the sustainable provision of basic services. Of the 40 Social Fund projects in the portfolio at end-fiscal 1996, about two-thirds had long-tenn objectives and only a third had short term objectives, i.e., they aimed primarily at the rapid creation of employment in response to a shock. Furthennore, there has been an evolution over time in Social Fund project objectives from short term objectives toward long term objectives. For example, among the first 15 Social Funds to be approved by the Bank since 1987, about 20 percent had long term objectives. Among thelast 15 Social Fund projects to be approved by the Bank as of end-fiscal 1996, about 80 percent of the Social Fund projects had long tenn objectives.

(iv) Of. the Social Fund projects in the portfolio at end-fiscal 1996 that had short term objectives, about 20 percent were "at risk". Of the Social Fund projects in the portfolio at end-fiscal 1996 that had long term objectives, about 35 percent were "at risk". None of the eight closed Social Fund projects for which information is available exhibit a disconnect between the last Development Objective rating at supervision and the OED validated ICR outcome rating or PAR rating.' Of these eight projects, six projects had short term objectives and two projects had long term objectives.

(v) In general, adequate and appropriate Bank actions are being taken to address the "at risk" Social Fund projects. Nevertheless, these projects should be closely and continuously monitored and further remedial actions taken as warranted. The Working Group regards sustainable outcomes-on-the ground as a key element of project quality and believes that the quality of the Social Funds portfolio can be enhanced by improving the entire portfolio - not simply by focussing on the bad cases. Hence, this review is not focussed primarily on the twelve Social Fund projects currently "at risk". Instead, it takes a broader look at the ponfolio and addresses generic issues that apply across projects.

(vi) Overall, this review has shown that Social Funds have performed well on a number of fronts and that they have considerable potential as instruments of collaborative partnership between public-private­COl1UIlUnity sectors for sustainable service delivery. Social Funds have often succeeded in targeting the poor and in providing basic services more cheaply and speedily than public sector agencies that have traditionally been charged with these functions. The autonomy-accountability mix of Social Funds is an attractive feature of their organizational design that can be of relevance to broader governmental reform .

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(vii) The Working Group's review of quality~at-entry and implementation experience leads to the conclusion that those Social Fund projects that have the objective of responding to emergency situations through the rapid creation of employment opportunities are likely to achieve their objective. The design of Social Fund projects with shon term objectives reflects well their emergency nature. This review t therefore, focuses on the evolving product of the future, i.e., Social Fund projects that have longer term objectives of providing services to the population below the poverty line or living in vulnerable and marginal areas.

(viii) The Working Group's review yields mixed results regarding quality-at-entry and implementation experience of Social Fund projects aimed at long tenn objectives, i.e., delivering services and building local capacity for the sustainable provision of basic services: education and health components of Social Fund projects are expected to provide sustainable benefits on-the-ground, but the sustainability of the benefits of. the economic infrastructure and microfinance components of Social Fund projects is less clear. There are emerging issues related to the sustainability of outcomes on~the-ground, in particular: (i) the need to devote greater attention to operations and maintenance of the subprojects (a reflection, inter alia, of inadequate demand-orientation and community-participation in the choice of subprojects and inadequate attention to local capacity-building); and (ii) the need to better coordinate Social Fund project activities with relevant sectoral policies and investment priorities. Concerns about the sustainability of Social Fund subproject benefits have been raised in other reviews as well.

(ix) It is a basic premise of this review that in order for the Social Fund subprojects to realize their potential development impact and become sustainable, conditions need to be in place to ensure that the subprojects financed by the Social Fund are demand-oriented, owned by the communities in the design, implementation, and maintenance phases, and that appropriate institutional and financial arrangements are put in place to sustain subproject benefits. These conditions call for careful design of Social Fund projects as they shift from a focus on emergency assistance to service delivery and local capacity­building. For example, community panicipation should be reflected not merely in the identification of priorities, but equally through institutional mechanisms to sustain conununity involvement in decisions about subproject design, implementation, O&M, and evaluation. Key design elements that are essential for subproject sustainability - evidence of demand, appropriateness of technical standards, community participation, and local organizational and financial capacity to manage and maintain investments - should be integrated up front into Social Fund subproject appraisal criteria. It is also imponant to ensure that the intennediary organizations that prepare and sponsor subproject proposals are committed to these criteria and capable of applying them. With respect to the micro finance components of Social Fund projects, it is critical that the intermediaries supported are sustainable in terms of their capacity to continue to provide fmancial services beyond the time frame of the Social Fund's involvement. Box 1 surrunarizes the main recommendations of the paper as well as the follow-up actions.

(x) A clear vision of the role of a Social Fund vis-a-vis that of other public and private institutions can help to enhance the effectiveness and sustainability of service delivery. The establishment of a Social Fund project in a country should be preceded by an assessment of its suitability and feasibility; Social Funds are not an appropriate response in every country. As with other interventions that the Bank supports, the case for a Social Fund should be argued - not simply announced - in the Country Assistance Strategy. The rationale and appropriateness' of Social Fund projects should be considered explicitly in each country in relation to the requirements and alternative approaches for extending services to the poor,' enhancing sectoral performance, and improving public investment.

(xi) This review also identifies a set of conditions under which Social Fund projects (or a variant of

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the Social Fund) can play a longer term, more pennanent role - as a production entity, as a special funding window, or as an instrument for community-capacity building. Social Funds, however, cannot be a panacea for poverty as they have been conceived in some countries. Economy-wide refonns aimed at increasing the efficiency and equity of public spending and improving the overall performance and poverty-orientation of central and local institutions are critical for sustained growth and poverty reduction.

(xii) Social Funds have demonstrated a remarkable capacity to internalize lessons from experience -both over time as well as across countries. In recent years, an increasing number of Social Fund projects are moving towards what this review considers as good practices for sustainable service delivery - often surpassing other sectoral portfolios. In fact, other Bank projects for the poor would benefit considerably from assimilating specific feantres of Social Fund projects. Nevertheless, there remains scope for further improvement - both in terms of deepening the incorporation of particular good practices as well as their more widespread adoption. The recommendations made here are aimed at enabling the realization of the full potential of an already evolving and dynamic Social Fund portfolio with respect to sustainable benefits on-the-ground - especially, for that part of the Social Fund portfolio that aims at long term objectives.

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Box 1: Ensuring Sustainable Outcomes On-the-Ground

(i) The establishment of a Social Fund project in a country should be preceded by an assessment of its suitability and feasibility; Social Funds are not an appropriate response in every country. As with other interventions that the Bank supports. the case for a Social Fund should be argued - not simply announced - in the Country Assistance Strategy. The rationale and appropriateness of Social Fund projects should be considered explicitly in each country in relation to the requirements and alternative approaches for extending services to the poor, enhancing sectoral performance. and improving public investment. At the identification/preparation stage, it is necessary to establish clearly whether existing policies and institutions are conducive to sustainability and what the Social Fund would need to do to support sustainability conditions. In countries where sectoral policies are poor, a Social Fund if well-designed can provide good demonstration of sustainable subproject design; and where sectoral policy is good in terms of sustainability, the Social Fund can replicate good subprojects. The bigger the size of overall Social Fund investments relative to the size of each sector (even if individual subprojects are smalJ), the more important it is that they conform to the sectoral development strategy and that evolving sectoral good practices are observed.

(ii) If Social Funds are to fulfill their potential as participatory. demand-oriented instruments for sustainable service delivery to the poor! this needs to be reflected not only in their overall objectives. but more imponandy in their design and implementation as well. Demand-orientation requires that projects offer clients a range of options (e.g .• in the choice of goods and services. and technical and service-level options) from which to choose; provide information to assist clients make informed choices; and require evidence of conunitment and interest through cash or in*kind contributions andior the initiation and completion of organizational tasks as a condition of subproject approval and release of funds. The institutional design of such projects needs to be fundamentally different from supply-driven projects.

(iii) Social Fund projects that aim to achieve sustainability of services should incorporate instimtional mechanisms to ensure community involvement beyond subproject identification. Conununity involvement should be sustained in decision*making throughout the design. implementation. operation and maintenance, and evaluation of subprojects and reflected in community authority and control over expendirures. Mechanisms should also be in place to ensure that community decision-making adequately represents groups such as the poor.

(iv) The design and implementation of the outreach. and local capacity-building components of Social Fund projects should receive greater attention. Investments should be made in building organizational capacities of communities - not just in developing their technical skills. As the poorest among the poor are not always adept at articulating their needs in a systematic fashion. mobilization and training of these groups under Social Fund projects would improve the prospects of reaching them. Special effortS should be made to ensure that training plans related to capacitv-building efforts are translated into actual training since this has been an issue even in the better Social Funds.

(v) Social Fund projects that have as their objective to provide improved coverage of services (the non-emergency group) should ensure that the kev design elements that lead to sustainability (e.g., in the case of economic infrastructure. evidence of demand. the appropriateness of technical standards. and sound O&M arrangements) are integrated upfront into Social Fund design and appraisal criteria. This would mean. for example. that entering into agreements with user groups or government agencies that the O&M costs will be met is not sufficient - it would require ensuring that the concerned groups or agencies are committed to the criteria for sustainability and possess the capacity - financial and institutional - to meet the agreed obligations. It would also require that Social Funds monitor as systematically as possible the extent to which investments supported by them are being utilized and maintained. as well as how much revenue is actually collected fur cost recovery purposes and how it is used. Sanctions or withdrawal of the services offered should also be considered where the beneficiary contribution is not met. contd.

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6. During the design stage. an assessmentshould be made of the capacity of the intennediaries to be used by Social Funds. in tenns of their experience. stage of development, and perfonnance. With respect to micro finance components of Social Fund projects. the focu$ should be on building the capacity of first tier intennediaries to provide sustainable financial services rather than merely providing funds for onlending to the intermediaries for a limited period. Specialized agencies and consultants may be contracted to provide technical assistance where appropriate.

7. Critical to achieving the above sustainability conditions is the need for explicit collaboration across sectoral and disciplinary Bank units in the design and supervision of Social Fund projects. Sector specialists should design and supervise components of the Social Fund project penaining to their respective sectors and subject areas.

8. Social Funds should lav more emphasis than in the past on monitoring outcomes on-the-lUOund. Given that the poor are often the main target groups of Social Fund projects. the systematic collection of data relating to the socio­economic profile of Social Fund beneficiaries is critical. The Bank should ensure that the acwa! collection of outcome data does not lag behind plans to do so. The budgetary and staff-time implications of doing so - both for the Social Fund and the Bank - should not be underestimated.

Follow-up Actions

1. The twelve projects that are presently identified as being "at risk" should be closely and continuously monitored and further remedial actions taken as warranted. The fiscal 1997 ARPP (portfolio Improvement Plan) should repon on the twelve "at risk" Social Fund projects.

2. This review has highlighted the differing standards across sectors for assessing likely SUSClinability of Social Fund benefits on-the-ground. Such a difference in standards has also been highlighted regarding the stand-alone projects in these sectors as well (Le., not just Social Fund components). Depending on the standards used in a particular sector, the sustainability of Social Fund benefits would be deemed to be assured - or less clear. Bank management should review the standards for sustainability being used across the different sectors. If there are intrinsic differences between sectors. differing standards across sectors can be justified. If not. a consistent standard for assessing sustainability across sectors would be warranted - and will have to be developed and adopted. Depending on how the issue of standards is resolved, it would be useful to revisit the Social Fund portfolio to detennine the likelihood of its achieving the intended outcomes on-the-ground. The criteria for asSigning Implementation Progress and Development Objective ratings may also need to be revised to reflect these sustainability standards.

3. The recommendations made in this review can enable the Bank to realize the full potential of Social Fund projects - especially those incorporating long term goals - with respect to sustainable benefits on-the-ground. II:!!: recommendations and the good practice examples identified here should be disseminated widelv. Through appropriate training and sensitization. task teams and project staff should be encouraged to address these issues and make the necessary adjustments in ongoing and new Social Fund projects. The managers of the units designing or implementing Social Fund projects should also be exposed to these good practices so that they can play their due role in getting them incorporated in the projects under their management. The importance of adapting good practices to the country-context and the need to constantly update them in the light of new experiences cannot be over-emphasized. The netWork structure should be used to share experiences and disseminate good practices and innovative approaches relating to the design and implementation of Social Fund projects across country departments. The Social Fund Web page CUJTCntly being set-up should also be used for this purpose.

4. Operationally-oriented research and impact studies should be done in the field soecificallv aimed at comparing the features of Social Fund and non-Social Fund projects and their reSUlts in terms of the targeting. demand-orientation. and sustainability of subproject benefits. This field work should be done with participation of Social Fund staff in the countries concerned to increase learning from, and commianent to. the results.

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I. Background and Purpose

(xiii) This review of the Bank's portfolio of Social Fund projects was commissioned by the Quality Assurance Group as part of the Portfolio Improvement Program (PIP) . The PIP covers both clusters "at risk" to ensure that implementation issues are identified and appropriately addressed as well as those with " outstanding" performance to ensure that successful experiences are adequately disseminated and replicated. The Social Funds portfolio was identified as a cluster worthy of review because it was perceived to have a low proportion of projects "at risk". Separately, concerns had been voiced by sectoral staff about the sustainability of the benefits provided by Social Fund projects.

(xiv) In accordance with the terms of reference, this review highlights strengths and shortcomings of Social Fund projects, distills lessons for the future design and implementation of Social Fund projects, and identifies good practices for possible replication. The Working Group regards sustainable outcomes­on-the ground as a key element of project quality and believes that the quality of the Social Funds portfolio can be enhanced by improving the entire portfolio - not simply by focussing on the bad cases. Hence, this review is not focussed primarily on the twelve Social Fund projects currently "at risk". Instead, it takes a broader look at the portfolio and addresses generic issues that apply across projects. The resolution of broader issues raised in this review will improve the performance of the twelve "at risk" Social Fund projects as well.

(xv) Social Fund projects incorporate a number of innovative features. These include their emphasis on ·forging public-private-commuruty partnerships based on comparative advantage and the flexibility they offer in terms of subproject design and implementation by laying-down upfront only eligibility criteria -- not blue-prints - and by soliciting project proposals from multiple development actors including community groups themselves. The contexts in which Social Funds have been designed vary from severe fiscal, political, and institutional crises to ones in which governments have decentralized policies and where functioning sectoral ministries exist. Hence, the objectives and mechanisms used by Social Funds vary across countries. Broadly, Social Fund projects have supported one or more of three key objectives: (i) protecting poor and vulnerable groups from a shock through the rapid creation of employment opportunities; (ii) delivering services to the poor; and (iii) building local capacity for the sustainable provision of basic services. Social Fund projects have exhibited a considerable degree of adaptation and evolution in response to 'changes in the environment in which they operate, from a focus on emergency assistance towards service delivery and local capacity·building. As Social Funds move towards longer term goals, new challenges have emerged, in particular, how to ensure that the benefits they provide are sustainable.

(xvi) This review makes recommendations aimed at ensuring that Social Fund projects, especially those with long term service delivery and capacity-building objectives, realize their full potential and result in sustainable benefits on-the-ground. While the Working Group has been able to present only limited' evidence of better Social Fund outcomes resulting from the incorporation of specific design or implementation features recommended in this review - either because such Social Fund projects are too recent or because the relevant outcome data has not been collected - the recommendations of specific design and implementation features made in this review are based on the outcomes of other Bank projects where the recommended measures have been successfully applied.

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IT. Methodology

(xvii) This review incorporates two types of analyses: (i) ratings analysis; and (ii) analysis of quality­at~entry and implementation experience.

Ratings Analysis

(xviii) This analysis aims at detennining how Social Fund projects perform based on ratings assigned by Task Managers during project supervision and recorded in the Bank's internal management infonnation system. These ratings reflect the Task Manager's assessment about the project's Implementation Progress (IP) and the likelihood of the project achieving its Development Objectives (DO). Recently, the Quality Assurance Group (QAG) has developed "at risk" indicators that can help identify potentially problematic projects. Box 2 outlines the criteria for "at risk" projects. These criteria are applied here to the Social Fund portfolio to detennine what proportion of it is presently "at risk".

(xix) In order to determine how the overall ratings performance of Social Fund projects compares with that of other Bank projects aimed at the poor, the Working Group identified a set of comparator projects. The comparators include projects approved over the same time period as active Social Fund projects (i.e., FY91 ~96) and in the same countries as the active Social Fund projects - in the following categories:

Comparator poverty targeted projects. For the period FY92-FY96 the relevant projects were chosen from the Program of Targeted Interventions (PT!) for this period, and for FY91 the relevant projects were selected from the available list of IDA poverty targeted projects since PrIs did not exist prior to fiscal 1992. PTIs that are also Social Fund-Related projects or Dernand­driven Investment Funds (see definition below) were not included here.

Comparator education and health projects. They are a subset of the comparator poverty targeted projects and include projects in the education and health sectors.

Comparator economic infrastructure projects. They are a subset of comparator" poverty targeted projects and incl,pde projects dealing with water ~d sanitation and transpon (e.g., roads, bridges, paths).

Comparator participatory projects. They are a subset of comparator poverty targeted projects and include FY94~96 PTIs classified by the Monitoring Unit of Poverty, Gender, and Public Sector Management Department as being participatory (i.e., involving directly-affected stakeholder participation) as well as FY92-93 community-based development projects for Environmentally Sustainable Development sectors identified by the Environment Department that are also PTls. For FY91, the relevant information was not available and, hence, no FY91 projects are included in this comparator. Comparator participatory projects are a subset of a growing number of community-driven projects that use demand-responsive mechanisms; these projects have recently been termed Local and Couununity-Driven Development (LCDD) projects.

Comparator microfino.nce projects. While an attempt was made to find suitable microfinance projects to compare Social Fund projects with, this effort was abandoned because: first, the overall ratings for Social Fund projects are an inaccurate proxy for the performance of the

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Box 2: Criteria for "At Risk" Projects

Projects "at risk" comprise acrual problem projects and potential problem projects. Actual problem projects are defined as those projects that have unsatisfactory Implementation Progress (IP) or Development Objective (DO) ratings or both in the last fonn 590 as of a cenain date (in this case, January 13, 1997). Potential problem projects are those projects that have a satisfactory IF and DO rating in the last fonn 590 as of a specific date (in this case, again January 13, 1997). but which suffer from three or more of the foUowing problems:

(i) EffectiveTll!ss delays. Operations that are not effective within 9 months of Board approval for investment projects and within three months of Board approval for adjustment and emergency operations. The effectiveness flag is turned off three years after Board approval.

(ii) Extended problem project status. Projects in problem status for two or more than 2 consecutive years any time during implementation. The extended problem project status flag is turned off whenever a project is restructured.

(iii) Slow disbursements. Projects experiencing disbursement delays of 18 months or more for investment operations or 6 months or more for adjusttnent and emergency operations.

(iv) Risky counrry. Countries where the percentage of projects closed in the previous five years and rated unsatisfactory by OED is over 50 %. or where the share of net conunitments associated with these unsatisfactory projects is over 33 % . For relatively new borrowers with less than three evaluated operations. OED data is supplemented with ARPP ratings for ongoing operations older than two years.

(v) Poor economic 11II1Tlllgement. This criterion uses DEC' s country macra-economic management ratings and. on a scale of 1 to S, applies to countries with an average rating of less than 3 for the previous three years.

(vi) Risky subsector/instrument. Applies whenever the project belongs to a subsector for which the percentage of projects closed in the previous five years and rated unsatisfactory by OED is over SO %. or when the share of conunitments associated with these unsatisfactory project is more than 33 %.

(vii) Envirorunt!1Jlallresettlement perfonnance. Based on the sub·rating for environment/resettlement performance.

(viii) Poor compliance with legal covenants. Projects with a rating of 3 or 4 00 this item. (ix) Counterpan funding constraints. Projects with a rating of 3 or 4 on this item. (x) Project 1Tlll1U1gement problems. Projects with a rating of 3 or 4 on this item. (xi) Procurement problems. Projects with a rating of 3 or 4 on this item. (xii) Poor jinanciJJl perfo17Tll1JZce. Projects with a rating of 3 or 4 on this item.

In addition to the above-mentioned modifications. a new "'golden flag'" will allow regional management to exercise its judgement and remove projects from the "at risk" list that they believe are "false positives". They could also add projects not fulfilling the criteria, if they believe that the prospects for a successful outcome are inappropriately captured.

""

Source: World Bank Office Memorandum from Prem Garg to Operational Managers and Advisors dated December 16. 1996.

micro finance component of the Social Fund projects since the micro finance components generally account for a small percentage of the total loan amount; second, the comparison is made even more difficult by the lack of a breakdown of component costs for most of the microfinance activities within Socia! Fund projects; and third, we found only two countries (Madagascar and Zambia) which had active Social Fund projects incorporating micro finance components as well as a conventional· Bank-supported micro finance project.

Social Fund·Related Projects and Demand Driven Investment Funds (DIFs). In the case of DIFs and Social Fund·related projects, it was not possible to select only projects in active Social Fund countries or only those that were approved over the same time-period as active Social Fund projects because a complete list of DIFs and Social Fund-related projects does not exist in the

-3-

Bank at this time. A sample of projects widely accepted as falling in this category were chosen to form this comparator.

(xx) The ratings performance of Social Fund projects was compared to that of each of the above comparators.

Quality-At-Entry and Implementation Experience

(xxi) The second type.of analysis in this review goes beyond ratings to examine quality-at-entry and implementation experience - especially for the recent cohort of Social Fund projects that have long term objectives. At present, OED evaluations are available only for a very limited number of Social Fund projects with long term objectives. Furthermore, although IP ratings will soon be assigned separately for each project component across the entire Bank portfolio, at present such a breakdown is unavailable for most Social Fund projects. The overall Social Fund project ratings currently available do not fully capture the performance of individual components of Social Fund projects especially with respect to the likely sustainability of the benefits they deliver. Hence, this review attaches considerable importance to quality-at-entry issues for each Social Fund project component. Quality-at-entry caprures the soundness (or otherwise) of the design of an intervention. An intervention that lacks sound design elements can only have limited chances of success. Quality-at-entry issues are evaluated here on the basis of Staff Appraisal Reports and Social Fund Operational Manuals.

(xxii) In addition to quality-at-entry, the Working Group reviewed the implementation experience of Social Funds based on supervision reports and other available evaluations. In a number of cases, the Working Group members' own operational experience with Social Fund projects was also brought to bear on the review. The main, general reviews of Social Fund projects - Bank and non-Bank - that were referred to are listed under "Selected References". In addition, a number of project-specific evaluations of Social Funds were also used.

(xxiii) Interviews of Task Managers and other Bank staff were undertaken for a sample of twenty-seven Social Fund projects. A limited number of non-Social Fund projects were analyzed in-depth to provide a point of comparison with Social Fund projects especially with respect to sustainability issues. No project-by-project recommendations have been made in this review - rather, the discussion has focussed on generic issues that apply to the portfolio as a whole. The recommendations in each section arise from a systematic review of the portfolio by the Working Group. An attempt has not been made to present all the relevant project examples or quantification in the present report; these can be found in background papers.

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"

ill. Overview of the Social Funds Portfolio

Numbers and Commitments

• As of end-fiscal 1996, the World Bank had approved 51 Social Fund projects (43 free standing projects and eight components of broader projects) in 34 countries amounting to commitments of over US $1.3 billion. Of the 51 Social Fund projects, 40 were active at end~fiscal 1996 amounting to a portfolio of US $1.2 billion. Attachment I lists the 51 Social Fund projects.

• Social Fund projects are a smaIl --, though not insignificant -- part of the overall Bank portfolio. The active Social Fund portfolio amounted to about 3 percent of the total number of active Bank projects or about 1 percent of the total Bank commitments for active projects at end-fiscal 1996. 1

• Commitments for Social Fund projects more than doubled during the period fiscal 1992-96 compared with the earlier five year period from fiscal 1987-91. In fiscal 1996 alone, commitments for Social Fund projects exceeded half a billion US dollars accounting for about 37 percent of cumulative Bank commitments for Social Fund projects up to end fiscal 1996. Chart 1 presents the distribution of Social Fund projects and commitments by fiscal year.

• Of the 51 Social Fund projects approved up to end-fiscal 1996, ten were AGETIPs -- all in Sub­Saharan Africa - amounting to US $220 million or 16 percent of the total commitments for Social Fund projects up to end-fiscal 1996.2

• While it is difficult to determine the precise volume of funds spent or to be spent on the various components of Social Fund projects, roughly one-third of total project cost is allocated to economic infrastructure and a similar proportion to Health, Nutrition, and Population (HNP), and Education sectors. The remaining one-third covers activities such as, for example, training, environmental interventions, or microfinance. In Social Fund projects which have a micro finance component and for which the relevant breakdown is available, the microfinance component represents roughly 20 percent of the Bank amount.

1/ At end.fiscal 1996. there were 1503 active projects in the entire Bank portfolio amounting to US $123,9 billioo.

'1./ The ten AGETIP projects include: SeoegaJ Public Works and Employment Project I (closed). Senegal Public Works and Employment Project n. Burkina Faso Public Works and Employment Project (closed), Niger Public Works and Employment Project. Mali Public Works and Capacity Building. Mauritania ConsaucDon Capacity and Employment. Chad Public Works aDd Capacity Building. Gambia Public Works and Capacity Building. Madagascar Antananarivo Urban Works, Guinea Bissau Transport and Urban lnfrasauC1llre. There are th.ree AGETIP projects (Le., Mauritania Urban Infrastructure and Pilot Dec::enttalization project. Benin Urban Rehabilitation and Maoagement project. Togo (Lome) Urban Development project) which are not classified in this review as Social Fund projects because they do Dot satisfy one of the essential criteria. viz., in each of these cases, AGETIP managemeot does not wield investment programming powers and simply executes subprojects selected by the municipalities and presented to it for execution. These projects represent an evolution from early AGETIPs where the' investment programming function is mumed to the municipalities in order to strengthen municipal programming capacity; in dtese cases, the AGETlPs themselves operate simply as ·production entities-, However, there is still some CODuovcrsy over this approach, with some arguing that. in the light of the lack of ICChnical capacity within municipalities. the AGETIP has in the past aca:d as the technical arm of the municipality, and should continue to do so; if planning. programming, and operations and maintenance functions are given to the municipality. this might slow down all activities and lead to effiCiency losses. This is an issue not pursued in this report but ODIC that merits further review. The US $220 million does not include aIlocatiODS for activities such as education, health, or nuaition that are COOU'lcted out to some AGBTIPs.

Chart 1: Social Funds Approved up to end - FY96, by Year of Approval

1995 6%

1996

12%

1987 19881989

2% 2% 4% 1990

1993 18%

4%

Number of Projects

1991 16%

12%

1995 4%

13%

1993 9%

1996 37%

1992 8%

Commitments

1987 1%

1988 2%

1989 1% 1990 3%

22%

• Of the 40 Social Fund projects in the portfolio at end-fiscal 1996, about a third of the projects had short term objectives, i.e., they aimed primarily at the rapid creation of employment in response to a shock. The remaining two-thirds had long-term objectives, Le., they aimed at delivering services or building local capacity for the sustainable provision of basic services. Attachment I (referred to earlier) also indicates which of the Social Fund projects in the portfolio have long term objectives and which ones have short term objectives.

• Over time there has been an evolution in Social Fund project objectives from short term . objectives to long term objectives. For example, among the first 15 Social Funds to be approved

by the Bank since 1987, about 20 percent had long term objectives. Among the last 15 Social Fund projects to be approved by the Bank as of end-fiscal 1996, 8:bout 80 percent of the Social Fund projects had long term objectives.

Regional Distribution

• Sub-Saharan Africa and Latin America and the Caribbean together account for over 80 percent of Social Fund projects. Sub-Saharan Africa alone accounts for over half the total number of Social Fund projects approved up to end-fiscal 1996 as well as maximum commitments amounting to about 44 percent of total Bank commitments for Social Fund projects upto end fiscal 1996. This is followed by Latin America and the Caribbean region which accounts for about 30 percent of Social Fund projects approved up to end-fiscal 1996 amounting to a similar share of total commitments. The Middle East and North Africa region with roughly 19 percent of total Bank commitments for Social Fund projects up to end-fiscal 1996 comes next followed by South Asia at about 4 percent, Europe and Central Asia at about 2 percent, and East Asia and the Pacific region with about 1 percent. Chart 2 presents the regional distribution of Social Fund projects. Table 1 presents the number of projects and commitments by region.

Table 1: Number of Social Fund Projects and Commitments by Region

Region Number of Social Fund Commitments US $ m projects

Sub-Saharan Africa 27 592

Latin America and the 15 410 Caribbean

Middle East and North Africa 3 263

Europe and Central Asia 4 24

East Asia and Pacific 1 20

South Asia 1 58

-7-

Chart 2: Social Funds Approved up to end - FY96, by Region

EAP 2% ECA

53%

SA 6% 2%

Number of Projects

LAC 29%

AFR 44%

SA 4%

EAP ECA 1% 2%

MNA 19%

Commitments

LAC' 30%

IV. Performance of the Social Funds Portfolio based on ARPP Ratings and "At Risk" Indicators

Social Fund Projects "At Risk"

• Of the 40 active Social Fund projects at end-fiscal 1996, twelve Social Fund projects were found to be "at risk".3 These twelve "at risk" Social Fund projects amount to 30 percent of the total number of active Soci~ Fund projects or 21 percent of the total commitments for active Social Fund projects at end-fiscal 1996. Table 2 indicates the status of each of the Social Fund projects based on ARPP ratings and QAG-identified "at risk" indicators. Attachment n provides the raw data used in constructing Table 2. Attachment m presents the proportion of projects "at risk" by fiscal year of approval.

• Of the Social Fund projects in the portfolio at end-fiscal 1996 that had short term objectives, about 20 percent were "at risk". The corresponding figure for Social Fund projects that had long term objectives is about 35 percent.

• AGETIPs have a higher percentage of their projects as well as commitments "at risk" compared with non-AGETIP projects.4

• Of the twelve "at risk" Social Fund projects, six are located in countries experiencing civil or political strife or representing post-conflict situations (viz. t Rwanda, Burundi, Angola, Haiti, Guatemala, and Chad). To the extent that Social Funds especially those with short term emergency objectives are undenaken to respond specifically to these circumstances, their ratings should be interpreted accordingly.

• For a random sample of three Social Funds in countries experiencing political or civil strife (viz., Rwanda, Haiti, and Burundi), the Working Group examined if the Social Fund project in each of these countries was rated better compared with other projects in the portfolio in the same country. The results are mixed. In Rwanda, the Social Fund project was rated Highly Satisfactory on both the Implementation Progress (IP) and Development Objective (DO) ratings­- this was the only project with such a high rating. Four other projects in the portfolio out of a total of seven projects were rated satisfactory on both IP and DO ratings and two were rated unsatisfactory on both IP and DO ratings. In Haiti, the Social Fund project was rated satisfactory on both IP and DO ratings together with four other projects out of a total of nine projects in the

'I They are: Angola Social Action Fund. Chad Public Works and capacity Building. Bunmdi Social Action. aDd Guinea Bissau Transpon and Urban Infrastructure project - in actual problem stlD.1S; and Sri I...an.ka Poveny Alleviation Project. Haiti EcoDOmic and Social Fund. Rwanda Food Security and Nuaiaon. GuaremaJa Social Investment Fund. Senegal Public Works and Employment Project. Guinea Bissau Social Sector Project. Comoros Population and Human Resources Project. and Madagascar Social Fund n - in potem:iaJ problem staD.1S. The QAG/OPR database on which this classification is based provides ratings and -at risk- indicators for projeclS as of January 1997 except for the Nicaragua Social Investment Fund I which closed in September 1996 and for which the rating reported at eod fisc:al-l996 in the QAG/OPR database is used. The Sri I..a.nka Poverty Alleviation Project is presently classified as an aC1Ual problem project in rile QAG/OPR database. but the Region bas advised that its aC1Ual problem stlD.1S was Iificd in December 1996; this project now classifies as a potential problem projccL The Task Managers for the Comoros aDd Guinea Bissau projects have indicated that while their projeclS have 1bree -at risk- flags in the QAG/OPR database. the third flag (COUJlIerpalt funding and slow disbursement problems) applies only to the oon-Social Fund components of the projects so the Social Fund component would only have twO flags and should not be classified as -at risk-. Similarly. in the case of the Rwanda project it bas been pointed out dlat the third flag (extended consecutive problems) was valid during the war and before the restructuring of the project; only two flags would be applicable now.

·1 About 38 percent of AGETIP projeclS are -at risk- (or 44 percent of commitments) compared with 28 percent of DOn-AGETIP projeclS (or 17 percent of commitments).

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Table 2: ARPP Ratings and "At Risk" Indicaton as of Jan 13, 1997 for Social Funds that were active at end FY96

1.<01 ... N .... I Y.ar Actual

I Pot.ntial -At RJ.k-

of Board Problem Problem (Actual +

Country Approval ProJtcts Projects Potential) EGYPT I Social Fund I 1991 HAITI Economic & SoaaI Fund 1991 ! ./ ./

NIGER Public Wonts & Empolyment i 1991 SAO TOME Multisector ProjeCt II 1991 SRI LANKA" Poverty Alleviation I 1991 ./ ./

ZAMBIA Social Recovery Project ! 1991 I ETHIOPIA Emergency Recovery & Reconstruction Project 1992

GUYANA : SIMAP/Health. Nutrition. Water & Sanitaton Project : 1992 I I

MALI Public Wonts & capacity Building 1992 i RWANDA- i Food Security and Nutrition Project i 1992 ./ ./

SENEGAL Public Wonts & Employment ProjeCt II 1992 ./ ./

BOLIVIA Social Investment Fund II 1993 BURUNDI Social Action project 1993 ./ ./

GUATEMAlA Social Investment Fund 1993 ./ ./

GUINEA BISSAU ... Social Action FLI'Id 1993 ./ ./

(SoCial Sector Project) MADAGASCAR I Food Security & Nutrition 1993

MAURITANIA I Construction Capacity & EmplOyment 1993 , NICARAGUA- Social Investment Fund (FISE I) 1993 CHAO Public WON & ~ Buildi~~t 1994 ./ I ./

COMOROS- Population & Human Resources Project I 1994 I ./ ./

ECUADOR Third Social Dedelopment Project: Sodal Investment Fund I 1994 GAMBIA Public WON & Capacity Building 1994 MADAGASCAR ! Madagascar Antananarivo Urban Works I 1994 I PERU Social DevelOpment & Compensatoin Fund (FONCODES) 1994 I ALBANIA I Rural Development I 1995 CAMBODIA I Social Fund 1995 , ZAMBIA Social Recovery II 1995 ALBANIA Urban WON and Micro Enterprise Pilot 1996 ALGERIA 1 Social Safety Net Support ProjeCt 1996 ANGOLA i Social Action Project 1996 ./ ./

ARGENTINA I Social Protection Project ; 1996 ARMENIA Social Investment Fund 1996 EGYPT SOCial Fund II : 1996 ERITREA Community DevelOpment Fund 1996 ETHIOPIA 1 Social Rehabilitation and DevelOpment Fund (ESRF I) i 1996 GUINEA BISSAU Transport and Urban Infrastructure Project I 1996 ./ ./

HONDURAS ISOCiallnvestrnent Fund III I 1996 I

MADAGASCAR I Social Fund II 1996 ./ ./

MALAWI I Social ActiQI"I Fund 1 1996 NICARAGUA I Social Investment Fund (FISE II) 1996

I , . LNUMBER OF PROJECTS , 4 8 12 I LENDING (USS M) 71 188.2 259.2

! !TOTAL NUMBER OF PROJECTS 40

I TOTAL LENDING (USS M) , 1221.8

I i Notes: j

Ratings as of January 13.1997: QAGJOPR database (RSKJANJeLS). I I

• This project was active at end FY96 but haS since dosed. Ratings for this project as of end FV96. - The actual problem status of this proJlCl was lifted in December 1996.

I I !

: :

I

:

!

I i , I ! :

:

I I

i

i

i I

i i I

i

!

I : i

:

I

! I !

!

-- The Task Managers for the the Comoros and Guinea Bissau pro;ec:ts have indicated that while their projed:s have three -...... flags I

Probl.m F ....

Projects ./

./

./

./

./

./

./

./

./

./

./

./ --

./

./

./

./

./

./

./

./

./

./

./

./

./

./

./

./

28 962.4

-r,; the OAGJOPR database. the third flag (counterpart funding and slow disbursement problems respectively) applies only to the non-Soc:ial Fund component of the projects so the Soc:ia1 Fund CXlmponent would only have two ftags and should not be c&assified as -at risk.. \

Similarty for the Rwanda projeCt. it has been pointed out that the third ftag (extendeCI c:onseeutive problems) was valid dtmg the war and before the ---",structuring of the proJect; only two ftags would be applicable now. I

~::. I I

•

portfolio; the remaining four had either one or both of the IP and DO ratings as unsatisfactory. In Burundi, the Social Fund project was rated unsatisfactory on both IP and DO ratings but there were four of a total of six· projects in the portfolio that were rated satisfactory on both IP and DO ratings; the remaining one project was rated satisfactory on the IP rating but unsatisfactory on the DO rating. Attachment IV provides the ratings for each of the projects in the portfolio for the countries referred to here.

Proportion of "At Risk" Projects in the Social Fund Portfolio Compared with Other Portfolios

• The ratings performance of Social Fund projects is rougbly similar to that of the total Bank: portfolio in tenns of proportion of projects "at risk" although in tenns of commitments the Social Fund portfolio fares better with 21 percent of Social Fund commitments "at risk" compared with 31 ,percent of commitments "at risk" Bankwide. The Structural Adjustment Loan portfolio and the Emergency Reconstruction Loan portfolio is superior to the Social Funds portfolio both in tenns of the proportion of projects and proportion of commitments "at risk". Table 3 provides the Bank portfolio '''at risk" by lending instrument based on ratings as of December 1996.

• How do Social Fund project ratings compare with the comparator sets of projects identified by the Working Group for this review? In tenns of loan amounts committed, a smaller or equal percentage of Social Fund projects are "at risk" compared with the comparators. In terms of number of projects, a smaller percentage of Social Fund projects ar~ "at risk" compared with DIFs and Social Fund-related projectsS, and comparator education and health projects. The same number of Social Fund projects are "at risk" as comparator poverty targeted projects. However, a larger percentage of Social Fund projects are "at risk" compared with comparator economic infrastructure projects and comparator panicipatory projects. Table 4 presents the proportion of comparator projects that are "at risk". Attachment V lists the individual comparator projects.

• While roughly half of the active Social Fund projects are in "risky countries", one-third of the projects in the overall Bank portfolio as of December 1996 were in "risky countries".6 Among the comparator projects, only Social Fund-Related projects and DIFs have a higher proportion (71 percent) in "risky countries"; a lower proportion of other comparator projects are located in "risky countries" compared to the active Social Funds portfolio.

Reasons for the "At Risk" Status of Social Fund Projects and Remedial Bank Actions

• . All twelve actual and potential problem Social Fund projects are located in "risky countries". This close association between Social Fund projects and "risky countries" reflects a conscious design choice as these projects are found to be an appropriate response for rehabilitating social infrastructure in countries emerging out of conflict or civil wars or other forms of strife and dislocation .

S, Half of the DIF and Social Fund-related projects sample used here is comprised of North East Rural Development Programs (NRDPs) in Brazil which may bias the results. The NRDPs have since been feStJUCmred and replaced by a new generation of Poverty Alleviation projects which are considered 10 be an improvement over the NRDPs.

'/ A "risky country· is defmed by QAG as one ·where the percentage of projects closed in the previous five years IDd rated unsatisfaclOry by OED is over SO percent. or where the share of net commitments associated with these unsatisfactory projects is over 33 percent-.

-11-

• Of the four Social Fund projects in actual problem status, three had both an "unsatisfactory" Implementation Progress (IP) as well as a Development Objective (DO) rating, and one had an "unsatisfactory" Development Objective rating only. The main reasons for the problem status of the four Social Fund projects as given in the last form 590 as of January 1997 are presented in Attachment VI. In one Social Fund project (Angola Social Action project), a non-project factor - the adverse policy environment - was the only reason for its problem status; the downgrading of this Social Fund to problem status was part of a decision to downgrade the DO ratings for all projects in Angola because of the uncertain economic situation, not because of any problem with the Social Fund per set In another project (Burundi Social Action project), the adverse country environment was the primary reason for its problem status. In the remaining two projects, the form 590s attribute the actual problem status to a number of project-related issues as well. These issues are being addressed by the Bank: one project has been informally suspended because of lack of capacity in the project unit and country reluctance to fix it (Chad Public Works and Capacity Building project), and counterpart funding problems in the Guinea Bissau Transport and Urban infrastructure project have been recently resolved.

• The reasons for the potential problem status of eight Social Fund projects and remedial Bank actions are presented in Attachment VIT. These projects are rated satisfactory on both IP and DO at the present time but their perfonnance could deteriorate owing to the identified potential problems. The measures proposed or being taken to prevent the projects from becoming actual problem projects are 'adequate and appropriate for these projects. Nevertheless, these projects should be closely and continuously monitored and further remedial actions taken as warranted.

Table 3: Bank Portfolio "at risk" in ARPP flScal-I996 by Lending Instrument

Lending Instrument By Number of Projects (%) By Net Commitments (%)

Technical Assistance Loans 33 40

Financial Intermediary Loans 36 33

Sector Investment Loans 37 33

Specific Investment LQans 32 32

Structural Adjustment Loans 26 13

Rehabilitation Import Loans 0 0

Sector Adjustment Loans 2S 24

Social Fund Portfolio 30 2~

Emergency Reconstruction 14 6

Total Bank Portfolio 32 31

Source: QAG/OPR daabaseATRlSK.XLS 12/17196. Ratings as of December 10. 1996. Figures for the Social Fund portfolio come from calculations undertaken for this review.

...12·

..

Development Objective Ratings At Last Project Supervision versus Outcome Ratings at Project Completion/ Audit

• Of the eleven closed Social Fund projects as of end-fiscal 1996, the "disconnect" (Le., divergence between the last DO rating at supervision and the OED validated ICR outcome rating or PAR rating) can be calculated for eight projects for which the relevant data is available. None of the eight Social Fund projects exhibit a "disconnect".'

• Of the eight closed and OED-evaluated Social Fund projects, about 75 percent (six projects) had short term objectives and 25 percent (two projects) had long term objectives.

Since a majority of the recent Social Fund projects have long teno objectives (about 80 percent of Social Fund projects approved over fiscal 1994-96), the performance of the eight OED-eva!uated projects provides only a limited sense of the likely performance of the recent cohort of Social Fund projects. This, coupled with the fact that ratings are not currently available for each component of the Social Fund project and do not, therefore, provide a full sense of the performance of individual components of Social Fund projects, led the Working Group to review the quality-at-entry and implementation experience of Social Fund projects separately for each component to determine if there is enough basis to expect these components to result in sustainable outcomes on-the-ground - especially, in the case of Social Fund projects that have non-emergency objectives.

"/ The eleven closed projects are: Bolivia Emergency Social Fund .1. Bolivia Emergency Social Pond n. Guinea Socio-Bconomic Development Support Project, Sao Tome m:l PriDcipe Multisector Project I. Bolivia Social InVe5llDent Pond I. Seoegal Public Works aDd Employment Project I. Honduras Socia1lnvestment Pond I. Burkina Paso Public Works aDd Employment Project I. Hoaduns Social Investment Fund n. Albania Rural. Poverty Alleviation Pilot, EriIJ"ea Ethiopia hcovery aDd Rcbabili1ation Project for Eritrea. The tbree projects DOt evaluated by OED are: Sao Tome and Principe Multisector Project I. Eritrea Edliopia Recovery and Rebabili1aDoD Project, m:l Burkina Paso Public Works and Employment Project I.

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Project Category

Social Fund.

AGETIPS

Non-AGETIPS

OIFs & Social Fund -Related projects •

Comparator Poverty Targeted Projects

Comparator Education and Health Projects

Comparator Economic Infrastructure projects

Comparator Partldpatory Projects

Note:

Table 4; Percentage of Actual problem. potential problem and Problem Eree Social Funds compared with the re'evant cohort of targeted poverty prolects lEY 87-98)

Projects at risk Actual Problem ProJects Potential Problem Projects (Actual + Potential)

./. of -Jo of .1. of Total Number of LoaniCredlt LoanlCredlt LoanlCredrt ProJectl (Active) % of Project. amount v. of Projects amount -J. of Projects amount

40 10 6 20 15 30 21

8 25 22 13 22 38 44

32 6 3 22 14 28 17

14 14 35 36 28 50 62

69 20 25 10 7 30 32

31 26 28 10 10 35 38

24 21 20 4 1 25 21

30 7 16 7 6 13 22

• Includes the North Eas' Rural Development Programs (NRDPs) In Brazil (50% of DIFs lample ) which may bias the percentage •.

9116198. SF _ TAB.XlS 8:54

Problem Free Projects

%of LoanlCredlt

.1. of Projects amount

70 79

63 56

72 83

50 58 I

I

I

70 68 !

65 62

75 79

87 78

V. Quality-At-Entry and Implementation Experience

• The W orleing Group's starting point for this section is the emphasis of the 1992 Portfolio Management Task Force Report on the sustainability of outcomes, summarized in the statement:

"The Bank's success is determined by benejits-on-the-ground -sustainable development impact - not by loan approvals. good repons, or disbursements".8

• As Social Fund project objectives have evolved over time in response to changes in the environment in which they operate - from a focus on emergency assistance towards delivering services and building local capacity for the sustainable provision of basic services - their design and implementation need to change as well. The yardsticks used to monitor perfonnance should also reflect evolving objectives. ,The Working Group's emphasis on assessing whether Social Fund projects are likely to result in sustainable outcomes on-the-ground reflect the new longer­term objectives of Social Fund projects relating to service delivery and local capacity-building for the sustainable provision of basic services.

• Overall, the Working Group's review including interviews with staff leads to the conclusion that those Social Fund projects that have the objective of responding to emergency situations through the rapid creation of employment opportunities are likely to achieve their objective. The design of Social Fund projects with short term objectives reflects well their emergency nature; this group of Social Fund projects is not, therefore, the focus of the analysis here.

• However, the Working Group's review yields mixed results regarding quaIity-at-entry and implementation experience of Social Fund projects aimed at service delivery and local capacity­building for the sustainable provision of basic services: education and health components of Social Fund projects are expected to provide sustainable benefits on-the-ground, but the sustainability of the outcomes of economic infrastructure and microfinance components of Social Fund projects are less clear. There are emerging issues related to the sustainability of outcomes on-.the-ground such as: (i) the need to devote greater attention to operations and maintenance of the subprojects '(a reflection, inter alia, of inadequate demand-orientation and community­participation in the choice of subprojects and inadequate attention to local capacity-building); and (ii) the need to better coordinate Social Fund project activities with relevant sectoral policies and investment priorities. Concerns about the sustainability of Social Fund subproject benefits have been raised in other reviews as well.9

" "Effective Implementation: Key to Development Impact". Portfolio Management Task Force, World Bank. Scpmmber 1992. page (u).

" For example, the Inter-American Development Bank: sbldy wReport on Social Invesunent Funds: Issues IDd Recommendations·. December 1996. page 49 states "The sustainability of social investment fund (sub)projects has been a major CODCml in all counaies ..... Bolivia '5

Social Investtnent Fund has given more weight than its predecessor to sustainabUity considerations over volumes of disbursements. Nevertheless. expost evaluations of primary health projects found serious flaws in mai.ntcnance due to a lack of necessary aUoc:ar.iDDS of resources by central government and insufficient training of personnel"; the Inter-American Development Bank smdy page 50 also poiDa out "Funds attempt to ensure that the required maintenance and service operations are carried out through formal agreements widt JOvel'llDl:Dt executing agencies. mUnicipalities, NOOs, and community groups. In practice, however. dlae agreements do DOt JWU'Ul1ee cbal die required activities will be sustained·~ Glaessner. Lee, Sant'Anna, de St. Antoine ·Poverty Alleviation and Sociallnvcstm.em Funds: The Latin American Experience·. 1994. page 22 observe ·Susr:ainabllity remains a potentially serious problem t:bat deserves more sysu:matic study·; tile Senegal PAR for die Public Works and Employment Project, 1996 draft. page 2 notes "The sustainabUity of many AGETIP invescmems is mx:ertain; dlis is basically due to lack of ownership and participation in die pn:·AGETIP phase (identification/preparation) aDd post-AGETIP phase (operation/maintenance)·, Furthermore. the concern about recummt cosu was summed up by a Task Manager with n:spect to his project in an interview conducted for this review "Theoretically, all the right moves have been made; the right ministries ban been identified, in practice

-IS-

• Deriving from the objectives of Social Fund projects, quality-at-entry and implementation experience are assessed in this section with respect to four issues: targeting the poor, community participation 8Jld demand·orientation, sustainability, and internal efficiency. The recommendations made here are aimed at enabling the realization of the full potential of Social Fund projects with respect to sustainable benefits on-the-ground - especially, of Social Fund projects incorporating long tenn objectives. Improvements in the directions recommended here are already visible in a number of recent Social Fund projects. The messages contained here are aimed at helping to consolidate the gains made so far and further improve the impact of Social Fund projects.

A. Targeting the Poor10

Findings

Objectives and definition of target groups

• Targeting the poor is explicitly mentioned as an objective in about half the Social Fund projects. All Social Fund projects identify the "poor" among their target groups - often, they are the main target group. Even Social Fund projects that are created as a response to economic decline :md structural adjustment programs, mention the poor among their intended beneficiaries while also including redundant public sector workers and other unemployed groups.

• Different Social Fund projects define their target groups with varying degrees of specificity. A majority of Social Fund projects refer to broad and general categories of poor populations without further defining "poor and vulnerable", "low-income", or "poorest among the population". Only a few Social Fund projects define their target group in measurable terms, for example, populations with infant mortality rates higher than a specified level.

• The degree of specificity - or lack there of - in defining target groups has implications for designing mechanisms for reaching the target groups and for monitoring the targeting outcome of Social Fund projects. In cases where the Social Fund project's target groups are not precisely defined, it may -be difficult for the project to incorporate appropriate mechanisms based on specific target group characteristics to reach them. It is also likely to be difficult to determine the extent to which the Social Fund project is reaching the intended groups and, hence, to make

they have been legally made responsible for O&M, but in reality. will chere be a budget?-. Concerns have also been raised about the need for better coordination of Social Fund activities with sectoral goals and priorities. for example. che Honduras PAR Rcpon No. 13839~HO, para 4.15 notes -Evidence on die imponaoce of individual projects for sectoral goals is (also) weak. for c.wnple. while there is IiUle doubt about the need for rehabilitation of classrooms and health centers, most of these projects involved some expansion of Cll*ity as well; yet there is no school or health center mapping sDlclics to identify where expansion is most needed. where schools and centers c;m be consolidated etc. This is a failing of the planning proccss. DOl of FHIS; but me speed wich which FHIS is operating exacerbates this problem-.

10/ AU 51 Social Fund projects were examined for overall targeting issues. The analysis of specific targeting issues is based 00 a sample of 29 Social Fund projects comprising projects in countries with repeater Social Fund projects aDd Social Fund projects referred by Task Managers (viz •• Bolivia Social Investment Funds I and n. Honduras Sociallnvestmcot Funds I. n. aDd m. Nic:anaua SlF I and n. Sao Tome and Principe Multisector projects I and n. Senegal, Public Works aDd Employmem project I and n. Zambia Social Rceovery Projects I and D. Ethiopia Pilot Social RehabUilatioo Fund and Social Rehabilitation and Development Fund, Eritrea CoIJll11llDily Rehabilitation Fund and Community Development Fund. Madagascar Food Security aDd Nulritioo project and Social Fund n. Egypt Soci1l FuDd I and n. Albania Rural Poverty Alleviation project. Rural Development Fund. and Urban Works and Microcnterprise, Guatemala SociallDvesanem Fund. PeI1I Social Fund. Ecuador Social Fund. Mali Public Works and Employment project, and Armenia Social Investment Fund). SII.ft' Appraisal Repons were reviewed for this sample of Social Fund projects. Operational Manuals and supervision repons were examined for a sulHample of the 29 Social Fund projects.

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any improvements in targeting if needed.

Mechanisms for ensuring that target groups are reached

• Social Fund projects increasingly incorporate a range of mechanisms for allocating funds so as to affect which beneficiary groups are reached. These mechanisms include: strategies for pre­selection or pre-assignment such as through: (i) targeting mechanisms; (ii) eligibility criteria; (iii) appraisal criteria; (iv) project menus (positive and negative lists); and for eliciting and managing demand by (i) requiring contribution to capital and O&M costs of proposed investments or requiring higher copayment for certain types of subprojects; and (ii) outreach (information dissemination, facilitation, and training).

• A number of Social Fund projects in Latin America support a wide variety of targeting mechanisms. These include: (a) geographic poverty maps based on some type of unmet basic needs index used to assign resources to geographic units; (b) self-targeting or built-in incentives (e.g., basic services, low wages, small subproject size) to encourage the poor to participate in programs while deterring the non-poor; and (c) social worker evaluations or on-site visits used to ensure that the poor within the designated areas are indeed reached. By contrast, Social Fund projects in Sub-Saharan Africa seem to pay less attention to targeting. This may partly be explained by the lack of relevant poverty data and the widespread rather than localized nature of poverty in Sub-Saharan African countries, but it appears that a greater use of the existing poverty data to identify target groups more precisely and better design targeting mechanisms may be possible at least in some Sub-Saharan African countries.

Performance indicators and monitoring

• Well over half the Social Fund projects refer to monitoring the types of beneficiaries reached as part of their monitoring plans. An increasin,g number of Social Fund projects support Beneficiary Assessments and client satisfaction surveys.

• The actual collection of data relating to the socio-economic characteristics of Social Fund . beneficiaries lags behind plans to do so. Such data has been systematically and regularly

collected in very few cases so far. Any determination of the effectiveness of Social Fund projects in targeting the poor is constrained by this lack of data.

• ARPP ratings on Implementation Pro,gress and Development Objectives do not adequately reflect the effectiveness of Social Fund projects in targeting the poor despite the fact that the poor are often the main target group of Social Fund projects.

Actual targeting outcomes

• The limited empirical evidence that is available shows that Social Fund projects that combine both subproject targeting/pre-selection strategies and efforts to elicit demand, have succeeded in achieving favorable targeting outcomes. Through a judicious use of targeting and demand­orientation mechanisms and through regular monitoring, the Peru Social Fund project, for example, achieved a favorable geographic distribution of resources as well as a favorable

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household-level targeting of resources. II The targeting outcome of Peru's Social Fund project is superior to that of five other government programs providing social and basic infrastructure. 12

Box 3 describes the mechanisms used in Peru's Social Fund project to ensure that the intended groups are reached.

• There is some empirical evidence to show that two government programs - India's Maharashtra Employment Guarantee Scheme and Chile's Special Employment Programs - both of which used low wages as an instrument to target the poor, achieved better targeting outcomes than Bolivia's Emergency Social Fund project which did not use wages for self-targeting the program to the poor. However, some commentators have pointed out that while government programs employ more of the target groups by offering work at low wages, they can have fewer indirect benefits for the target groups - for example, in Maharashtra' s Employment Guarantee Scheme it appears that economic infrastructure primarily benefited the non-poor; this was probably an important part of the political equation which sustained the implementation of the scheme. 13 By contrast, the involvement of private contractors in many Social Funds has meant that the wages offered on the public works have not been an instrument of self-targeting as in the government programs, but some "recent Social Funds have created economic and social infrastructure with positive indirect benefits for poorer households in the society" .14 A rigorous analysis of this issue would be useful.

• A recent review compared the data on the geographic distribution of Social Fund resources in four countries with the poverty levels in each of the . relevant geographic units within these countries. 15 These data show either that: the higher the poverty headcount index of the province, the lower was the actual per capita Social Fund expenditure it received; or the actual expenditures lagged behind allocations in the areas with the highest poverty index while they far exceeded allocations in areas with low poverty indices. The greater absorptive capacity of the richer regions probably accounts for the higher per capita Social Fund expenditure in these regions - highlighting possible trade-offs. Depending on the objective of the project, the provision of higher per capita Social Fund expenditures in the less poor regions could be less of a concern if the Social Fund project, nevertheless, does a good job in identifying the poor within that region and minjmjzes the participation of the non-poor in the services it offers. Did this happen in the four countries? While no empirical evidence is available on household-level outcomes of the Social Funds in the four countries reviewed, Beneficiary Assessments are

II/ In 1995, the first decile (10 percent of I:bc population living in the richest disaicu) received 0.8 pen:ent of FONCODES expenditures while the 10th decile (10 percent of the population living in the poorest districts) received about 21 percent of the eXl)enditures. Furthennore. the highest proportion of FONCODES expendil1.l.reS also went to the first (extremely poor) quintilc followed by the oext two (poor) quintiles. The Beneficiary Assessment conoboraa:d FONCODES's good targeting performance: ncarty 70 percent of the beDeficiaries were rural poor and their living conditions reflcctc:d high levels of poverty with houses lacking water (58 percent) aDd sewerage (57 percent). Int:ernal World Bank Report, 1996.

12/ Internal World Bank Repon. 1996.

U/ Frances Stewan and W"dlem V3II der Geest. • Adjustment and Social FUDds: Political Panacea or Effective Poverty Reduction-, n..o Employment Paper. 1994.

14/ Ibid.

U / The four countries for which this analysis was undertaken are Bolivia Emergency Social Fund, Egypt Social Fund I, Sri Lanka Poverty Alleviation project. and Zambia Social Recovery Project I. Sec ·Safety Net Programs aDd Poverty Reduction: Lessons from Cross-Country Experience-• Subbarao, Bonnerjec. Braithwaite. Carvalho, Ezemcnarl. Graham. Thompson, Directions in Developmem. World Bank. 1997.

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available for two of these countries. 16 In general, the Beneficiary Assessments indicate that Social Fund beneficiaries mainly came from poor population groups.

• While, in general, Social Funds seem to have succeeded in reaching poor population groups, the poorest regions or poorest groups of the population may be missed unless special measures are taken to prevent this. The case of Bolivia's Social Investment Fund (SIF) is illustrative. The pre-intervention baseline survey completed for the SIF provides information on communities, facilities, and individuals that are expected to benefit from projects financed by the SIF.17 It highlights three cases in which the poorest groups and regions may not benefit from Social Fund interventions. First, in the health sector, SIF concentrates on sector and area-level clinics. However, the fact that 38 percent of the poorest half of the population does not visit any kind of public health clinic suggests that there is need for outreach programs in order to bring the rural poor into the fold of the health care system. Without an effective public education and outreach program, many of the improvements in medical equipment and infrastrucOJre currently being financed by SIF will never reach the poorest members of the population. Second, in the education sector, data from one region reveals a systematic bias of SIF interventions towards schools serving better-off communities. This phenomenon can be explained by the fact that communities with significant NGO presence and whose leaders know about the SIP and its objectives are more likely to be able to prepare and present viable subproject proposals to the SIF for financing. Third, in the water and sanitation sector, the future beneficiaries of SIF water and sanitation investtnents are already somewhat better-off than other rural households. This is due . to the fact that SIP infrastructure investtnents are concentrated not in the poorest and most remote rural areas but in villages and towns to take advantage of the economies of scale that are possible when serving a large number of households within a particular geographic area. 18 Targeting the poorest will require supporting alternative technologies suitable for smaller concentrations of the population.

Recommendations

• Combining subproject targeting/pre-selection strategies with strategies to elicit demand, can enhance targeting outcomes as the case of Peru's Social Fund (presented earlier) shows. A two­stage allocation strategy should be used: first, eligible communities/areas are identified where the intended beneficiary communities are located (e.g., slum areas); second, within these specific areas, funds are directed only where demand (as defined in the next section on Community Participation and Demand-Orientation) is expressed by those beneficiary communities. This combination of allocation strategies should be widely replicated across Social Fund projects -adapting it to local circumstance.

• Targeting entails mechanisms to distinguish the poor froni the non-poor. These mechanisms imply costs. The extent of targeting that is appropriate in a particular Social Fund project should be determined based on the costs of targeting in relation to benefits.

• In order to ensure that the poorest regions and groups are not excluded from Social Fund project activities because they lack the capacity to prepare and present viable subproject proposals,

.t, Egypt Social Fund I. Zambia Social Recovery Project 1.

'" . MeMO Pradhan. Laura Rawlings. and Gccn Ridder. -Bolivian Social Investment Fund: Analysis of Baseline Dam for Impact Evaluation-, Vrije Universiteit Amsterdam and World Bank, March 1996.

'1, Ibid.

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considerable pre-investments in outreach, and training may have to precede the offer of Social Fund resources to them. This may have implications for the start~up speed of disbursements and administrative costs of Social Funds, and may require more intensive efforts to pre-select intennediaries that are disposed to do the required outreach and training for the poor as well as undertake the kinds of investments the poor communities demand.

• The scope for using existing poverty data to refine the definition of target groups and targeting mechanisms should be explored especially in Social Fund projects in Sub-Saharan Africa. In order to incorporate appropriate mechanisms to channel benefits to target groups based on their characteristics as well as to detennine whether they are actually being reached, the target groups should be defined in as precise and measurable tenns as possible. Recent Social Fund projects are making greater use of the poverty profiles contained in Poverty Assessments to determine and define their target groups better.

• Given that the poor are often the main target groups of Social Fund projects, the actual, systematic collection of data relating to the socio-economic profile of Social Fund beneficiaries is critical. Full-scale monitoring systems with control groups are not necessary or desirable in every Social Fund project, but modest quantitative priority surveys and qualitative Beneficiary Assessments and panicipatory evaluations should be regularly used to track beneficiary characteristics in every Social Fund project. The Social Fund need not undenake all mOnitoring and evaluation activities itself - this could be contracted out to specialized agencies as appropriate.

• Sometimes, the higher cost of reaching poor groups in sparsely populated regions may be outweighed by the lower leakages due to the homogeneity of the population in those regions. A careful costing exercise should precede any decision to exclude the poorest geographic regions from the Social Fund's coverage. The nature of poverty and the characteristics of the poor in these regions should be examined to determine the scope for self-targeting or implicit targeting.

• The ARPP ratings on Implementation Progress and Development Objectives should reflect the likely and, where possible, actual effectiveness of the Social Fund project in targeting the poor.

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Box 3: Achieving Successful Targeting Outcomes: The Case of Peru's Social Fund (FONCODES)

Intended target groups: Exuemely poor and poor rural and urban population. Targeting Mechanism in 1995: (i) 80 percent of budget allocated according to province-level poverty map; (ii) on-site visit; and (iii) self-targeting. Eligibility criteria give priority to labor intensive works with a focus on local unskilled workers and to basic service provision. Targeting Mechanism in 1996: (i) district-level poverty map; (ii) promotion and outreach activities in under-served areas; (iii) low wages used to self-target investments; (iv) computerized prioritization system which includes survey infonnation on poverty level and lack of basic services. Monitoring and Evaluation in 1995: Yearly ex-post beneficiary assessments; regular monitoring of correlation between geographic units and expendirures at the departmental level. Monitoring and Evaluation in 1996: Quanerly monitoring of correlation between geographic units and expenditures; monitoring of access by indigenous groups; regular ex-post beneficiary assessments and evaluation of completed projects. The evaluations of completed projects are used to identify sustainability problems. or failure of line ministries, for example, to place teachers and doctors promptly in completed buildings.

In 1996, FONCODES combined geographic targeting with individual assessments and incentives for self-selection of the poor. The allocation combines infonnation about the number of people living in populated centers which have between 40 and 300 households with a district-level poverty index from the poverty map used in previous years. Small corrections to the allocations were then made to reflect spending capacity of regional offices, flows of funds from directed donations and the special needs of border regions. A computerized system helps to prioritize projects according to poverty level. lack of services and absorptive capacity of communities. Promotion and outreach activities are directed at areas of extreme poverty where communities cannot propose projects on their own. Individual assessment mechanisms such as mandatory on-site visits are used to verify infonnally the poverty level of the community in question, providing valuable additional infonnation for refined targeting. Finally. self-targeting by low wages is a mechanism employed to ensure that only the poor have the incentive to take the employment offered by projects. PONCODES also has a thorough monitoring system. Expendiwres are regularly measured against allocations. Beneficiary Assessments are used to keep track of whom the projects reach.

Beneficiary communities were expected to contribute at least 9 percent of total project costs, in cash. labor or materials. overheads. and other inputs. Certain types of community-based projects were expected to have higher cost-sharing than others. depending on their relevance for extreme poverty alleviation. Based on experience with FONCODES projects in 1992 and 1993, it was estimated that communities would contribute to total project costs as follows: social assistance 5 percent; social·infrastrucwre 19 percent; and economic infrasaucrure 13 percent. In a recent Second Peru Social Fund project. beneficiary CQmmunities are required to contribute at least 10 percent of total project costs.

Recognizing that the poorest communities need greater assistance because of their inherent institutional weakness. FONCODES has been addressing this problem by: (i) allowing some communities to present for pre-screening a "profile" rather than a full-fledged project proposal. thus reducing preparation costs; (ii) through the Promotion Unit., helping some corrununities in project design and preparation; and (iii) completing a survey of the poorest populated centers in Peru that would provide infonnation about social and economic infrasaucture as an additional tool for targeting resources.

Source: Internal World Bank Repon, 1996. and discussions with Juliana Weissman, Jesko Hentschel, and Norben Schady, 1996197.

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B. Community Participation and Demand-Orientation19

Community Participation20

Findings

Objectives

• The objectives of Social Fund projects have evolved from emergency assistance towards community development for sustainable service delivery to the poor. Overall, about one-third of Social Fund projects specifically mention corrununity development, community self-help, or community capacity-building as part of their objectives. Since it is much easier to achieve construction and disbursement goals than corrununity participation or comnnmity development. goals, the latter are likely to be compromised if not reflected in the overall objectives of projects. A noticeable shift has occurred in the last two years towards these goals. In fact, some recent Social Fund projects are titled "community development" or "social development projects". The frequency with which particular community participation issues are addressed in Social Fund projects are indicated in Table 5.

Mechanisms for ensuring community participation

• Inclusion of community participation in Social Fund projects is probably higher than in any sector-specific portfolio of projects. However, the trend of findings is similar for Social Fund projects as for sector projects, i.e., there is high community participation in identifying priorities (90 percent of Social Fund projects), but there are few institutional mechanisms to sustain community involvement in decision-making in design, implementation, operation and maintenance, and evaluation of subprojects. Furthermore, only a third of the Social Fund projects have mechanisms to ensure that community decision-making adequately represents groups such as the poor.21

• In some recent projects, important innovations have occurred in the extent to which Social Fund projects give community groups control and authority over decision-making and financial resources .- probably ahead of other sectoral portfolios. In over one-third of the projects, community groups have authority to hire .. procure materials and/or supervise contractors and other technical experts, and signal satisfactory completion of work to the Social Fund to release

"/ The analysis here is based on quality-at-emry in 51 Social Fund projec1s as derived from Staff Appraisal Rcpons for all projects and Operational Manuals for a sample of projects were reviewed.

71), The discussion here does DOt make specific referenc:c to NGOs. NGOs can play an important role in eliciIiDg community participation in Social Funds - but this cannot be automatically assumed. For a disc:ussion of the role of NOOs in Social Funds. see Webb. Lee, Sant' Anoa (1995), and Malena (1996).

'11/ The Inter*American DevelopmemBank swdy -Repon on Social Investment Funds: Issues and RecommeDdariom-,1996, page 34, DOtes:

-In aC1Ua1 practice there are issues with respect to COmmunity participation: (i) it is often DOt clear who decides 1bt: priority of a (sub)project: Ibe community in response to its needs or the project promoters (NGOs. contractors, or even suppliers) inrespoDSC to their own agenda (or unutilized capacity) or the type of project the Fund is likely to approve-; (li) dlere is sometimes a mismatch between dle real needs of a community and the technical level of me specific project mat is requcst.ed (bcc:ause of lack of information because of the influence of special interests) .•. •. In Zambia Parent-Teacher Associations are weD organiZed in conununities. Their relative strength bas multed in education accounting for 70 percent of all projects financed in the first phase. The SAR of the Bolivia Social InvestmeDr FUDd n (para 8.4) notes: • Although the lack of instirutional capacity in poorer communities to formulate subprojects seems to have been solved to some extent by including pre-invesanent costs in the subprojects •••• it is not clear whether Ihc:se projec1S fully reflect community needs and aspiratioos-.

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payment; in one-fifth of the Social Fund projects, community groups open bank accounts and handle project funds. 22

• While over half the Social Fund projects support training aimed at developing technical skills of community members and training in O&M, only about a third of the Social Fund projects include capacity-building measures aimed at improving the ability of community groups to organize and manage their activities. This is despite the fact that investments in building organizational capacities of the communities are, in most cases, as - if not more - impOrtant as investments in technical skills. Without the capacity to organize, technical skills may remain unused.23

Performance indicators and monitoring

• Performance indicators are an important proxy for outcomes that are considered important. The key performance indicators for Social Fund projects are physical and finandal indicators, and those relating to subproject-cycle efficiency. Only one-fifth of the Social Fund projects include achieving demand-orientation and community participation as part of their key performance indicators. About half the projects use computerized Management Information Systems (MIS) to guide management decision-making, but less than five percent track community participation in the MIS.

Demand-orientation Findings

Objectives

• A 100 percent of Social Fund projects solicit proposals from public, private, andlor community groups. However. overall, only 16 percent of Social Fund projects mention achieving demand­orientation among their objectives. Demand-orientation is the extent to which projects: offer clients a range of options (e.g., in the choice of goods and services, and ,echnical and service­level options) from which to choose subprojects,· provide infoT71U1lion to assist clients make informed choices.; and require evidence of commitment and interest through cash or in-kind contributions and/or the initiation and completion of organizational tasks as a condition of subproject approval and release of funds. These organizational tasks consist of, for example, mobilizing resources or getting clearance on land titles. Since Social Fund projects aim to reach the poor and often work in a policy environment of no user charges especially from the poor, unless demand·orientation is reflected in objectives as a driving principle in design and implementation, it is unlikely to be maintained - with negative consequences for the sustainability of subprojects. It is a basic premise of this review that developmental impact and sustainability of Social Fund subprojects depends upon their meeting the demands of community groups.

%:I., For example. in the Eriu-ea Community DevelopmentFuud, the comrnunily Project Committee pays CODb'lClDrs from their bank account but automatically withholds ten percent of each installment; half of this withheld amount is paid to the conU"aC1:Or upon satisfaaory completion of me project. The remaining five percent is retained for up to a year as a guarantee against any defects which appear during use. In the Angola Social Action Fund and the Comoros Community Development Suppon funds. communities do not actually comrol bank accounts. but communities are responsible for verifying that work has been completed IDd authorizing the payment 10 be made by the Social Fund to the contnu:tors.

fJ, See Deepa Nanayan, "The CODUlbution of People's Participation: Evidence from 121 Rural Water Supply Projects" Environmentally Sustainable Development Occasional Paper series No.1. World Bank, Washington D.C .• 1995.

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Mechanisms for ensuring demand-orientatioD

• Depending on the specific features of demand·orientation examined, percentages of Social Fund projects that use one or more demand-oriented mechanisms range from 10 to about 40 percent. Ten percent of projects (or 5 projects) require community groups to make upfront contributions to gauge interest and commitment. A couple of projects require evidence of money collected and deposited in a bank account as part of a maintenance fund. Others require evidence of money collected or local materials collected, or cleared titles on land. Given that Social Fund projects aim to reach the poor t greater use is made of "organizational tasks completed II compared to cash contributions as an indicator of demand prior to subproject approval. One-third of the Social Fund projects require community groups to create Community Project Committees and about 42 percent require operations and maintenance committees prior to subproject approval. Social Fund projects are increasingly requiring statements about who is responsible for O&M in the long run. However, there are few sanctions if sponsoring agency or community committnents are not met and there is insufficient emphasis on ensuring or building adequate capacity of those parties expected to be responsible. .

• In only a handful of Social Fund projects in the last two years, was the subproject cycle clear in tenns of criteria to measure demand or in tenns of clarity in rules or conditions that would have to be met by the different parties to ensure movement through the different stages of the subproject cycle. The Zambia Second Social Recovery Project is an example of a Social Fund project that incorporates design mechanisms to support demand-orientation; see Box 4.

• Many projects still allocate funds by sector using indicative allocations (for example, based on needs assessments) and then attempt to steer demand towards those sectors without clearly specifying the criteria to gauge demand for projects in those sectors. Within sectors, the technological options offered are limited; only 12 percent of projects specify that one criterion governing technology choices will be the degree to which it can be maintained by community groups.

• While some Social Fund projects have well-thought out strategies for outreach, and information campaigns to elicit interest in the project, by and large this is still an underdeveloped component. An increasing number of projects recogniZe and invest in community level capacity to achieve sustainability of subprojects, but the emphasis has been on the provision of technical skills rather than on investing in the ability of community groups to organize and manage their activities.

Performance indicators and monitoring the extent ~f demand-orientatioD

• Not surprisingly, only a few projects track the extent to which subprojects are responding to priority needs and demands of community groups. A few Social Fund projects use both qualitative methods and computerized Management Information System (MlS) to keep track of the extent of community contributions to subprojects and the divergence between what was agreed upon and the actual community contributions.

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Recommendations

• Community participation and demand-orientation should be used as guiding principles in all Social Fund projects in which success and sustainability depends upon organizational capacity at the community level. These principles need to be reflected not only in the overall objectives of Social Fund projects, but, more importantly, in their design and implementation as well. Their institutional design needs to be fundamentally different from supply-driven projects.

• Stimulating community action, ensuring involvement of the poor and sustaining such interest, conunitment, and participation over time requires investment in local-level capacity-bUilding. Project preparation documents need to reflect the "process" elements of projects. Care should be taken to ensure that over-design does not kill a Social Fund's flexibility.

• As part of the overall design of Social Fund projects, attention needs to focus on the institutional mechanisms to ensure involvement of community groups in decision-making and managing resources rationally. Thus, projects need to shift from solely giving community groups "responsibility" to giving community groups "authority and control" over resources with built-in accountability and transparency. If adequate checks and balances are not in place, a Social Fund's flexibility in responding to local conditions could result in leakages and the lack of transparency. Good practice examples from Social Funds as well as sector specific projects need to be shared and made widely available.

• The subproject cycle must clearly specify the rules for interaction between the Social Fund, the intermediary, and the community, as well as the conditions for disengagement. Throughout this process, the characteristics of clients in terms of poverty, gender or vulnerability need to be clearly defined and methods to ensure their representation need to be specified.

• Greater attention and care need to be paid to choice of intermediaries, outreach mechanisms, the incentives to the intermediaries to respond to demand expressed by the community, and to facilitate building local organizational capacity of the poor rather than only completing subproject proposals and building physical infrastructure quickly. Once again, existing innovations need to be disseminated across sectors.

• If demand-orientation and community participation for sustainable service delivery and local capacity-building are the key objectives, they need to be reflected in the performance indicators, both in the computerized MIS and in the monitoring and evaluation activities which are used to inform management decision-making. The attainment of these objectives also needs to be tracked within the internal Bank performance tracking system.

• The use of Beneficiary Assessments, client satisfaction surveys, and other more directly participatory methods of client involvement in monitoring and evaluation should become standard practice in all Social Fund projects. Information gathered from such methods, should inform the Social Fund agency's decision-maldng and be used to ensure flexibility.

• Since the principles underlying conununity-driven development and demand-orientation cut across sectors, greater sharing of experiences across sectors should be actively encouraged. The creation of a focal point in the Bank on cOIlUDunity .. driven development to ensure the distillation and dissemination of knowledge should be considered.

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Table 5: Community Participation & Demand-Orientation in 51 Social Fund Projects: Quality-At .. Entry

Design Features CJ, of Social Fund in Staff Appraisal Reports Projects

Objectives Demand-orientation mentioned in objectives 16 Community development mentioned in objectives 32 Sustainability mentioned in objectives 22

Participatory Planning Community involved in identifying priorities 90 Attempt to include poor/vulnerable/women in planning process 34

Extent of Community Control & Planning Community has hiring. supervisory, contraCting. & procurement authority 36 Community certifies satisfactory completion of work 10 Community handles funds, opens bank account 20 Community training (technical skills training O&M training) I 52

Demand-Orientation Projects require up front contributions 10 Appraisal criteria include clear community commitment to O&M 10 Communities must have created project committee 32 Communities must create & specify tasks of O&M committee 42

Technical Choices Focus on simple technologies 12

Performance Indicators and Monitoring Projects monitor poverty level of client reached 62 Performance indicators include community participation 20 MIS tracks community participation 4 Beneficiary Assessments, client satisfaction surveys 54

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Box 4: Subproject Cycle Geared Toward Participation: Zambia Second Social Recovery Project

Subproject identification. Once the Social Fund informs communities of the availability of funds. the community expresses its interest in accessing the resources by sending a request for a subproject (to be defined later) to the regional Social Fund office. The community must then hold a public meeting. at which the entire community is represented. to discuss the needs and priorities of the community. Selection criteria state that the subproject must meet a "priority need for a mtljority of the community". The required public meeting is attended by the Fund regional project officer and after a thorough discussion, a project is identified and a Community Project Committee (CPC) is elected to develop a proposal.

C011l11UllJity Contributions Towards Subproject Cost. Communities applying for subprojects are required to make a commitment to contribute, in cash or in~kind, up to 25 percent of project costs. Subprojects which do not meet this

• requirement are either rejected or referred back to the community for an increased contribution. For communities which are obviously very poor and are willing, but unable to meet the full community contribution, the appraisal team may recommend a lesser contribution. In all cases, the project requires that communities make the bulk of their contribution (usually materials) upfront, before the project is begun as a clear indication of commitment.

C011l11UllJity Commitment to Operation and Maintenance. Every community must establish an O&M committee as part of its subproject planning process. For example, school subprojects must have existing and active Preventative Maintenance Committees in place. Water and sanitation subprojects must have O&M committees and a cost sharing system in place before a subproject is approved.

C011U1Ul.nity Control an Authority During Implementation. Once a subproject is approved, the CPC must sign a legally binding agreement with the Fund which describeS the conditions for financing and the responsibilities and liabilities of all· parties involved. Next, the subproject committee opens a bank account with two signatories (one of whom must be a woman) and receives its first disbursement (three additional disbursements are made when 75 percent of each previous disbursement is justified). The committee is then responsible for purchaSing materials, hiring labor. organizing work schedules, monitoring progress (with the help of a technical supervisor) and reporting on progress and financial requirements to the Fund. When the subproject is complete. the CPC along with the Fund and any relevant line ministry. signs the completion certificate. confirming that the project is satisfactorily completed. Community Evaluation. Beneficiary assessments are done annually to evaluate a sample of communities on their satisfaction with the subproject process, reSUlts, and impact on the community. The findings from these evaluations are fed back into the design of subsequent funding rounds. Two initiatives resulting from this type of analysis are an increased use of subproject launch workshops and the development of a detailed implementation manual for communities.

Capacity-Building in Community Development. An important form of capacity building for communities is the experiential learning the communities gain through their participation in the subproject process. The Implementation Manual is a key piece of this capacity building. covering topics from how to open a bank account to the value of a democratically elected committee. Communities can also request training on any special topic they need and community­based, vocational training is an eligible subproject activity. In addition. very poor and vulnerable communities are now receiving extra help from a local NGO in subproject identification and planning. Capacity building for Fund staff includes in-th~field. on~the-job training in community development and facilitation techniques, technical appraisal and monitoring. District level government officials also receive training in how to assist communities with subproject identification. appraisal, implementation and monitoring.

Source: Interview with Alan Dock. 1996.

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c. Sustainability of Subproject Benefits

• Sustainability of subproject benefits is· an important focus of this review especially for Social Fund projects that aim at longer-term service delivery and local capacity-building for the sustainable provision of basic services. The Working Group analyzed the sustainability issue specifically for economic infrastructure, education and health, and micro finance components of Social Fund projects - components that together account for over two-thirds of Social Fund resources.

• The review here of the likelihood of the sustainability of Social Fund projects that have longer term service delivery and local capacity-building objectives yields mixed results with respect to the different Social Fund project components. Health, Nutrition, and Population (HNP) and Education components of Social Fund projects are likely to provide sustainable benefits on-the­ground, while the picture is less clear for the economic infrastructure and microfinance components of Social Fund projects.

• Hypothesis for the differences in the findings across sectors are:24

(i) Qualitative differences among sectors. For example: (a) school and health clinic construction is relatively straightforward and uncomplicated, and off-the-shelf des!gns amenable to easy adaption are available whereas economic infrastructure construction tends to be less standardized and technically more complex; (b) the beneficiary population of schools and health clinics tends to be smaller in size and less scattered and hence more homogenous than that of road subprojects which increases the likelihood of communities mobilizing around a school or health clinic and developing a sense of ownership resulting in higher levels of participation in O&M;2S (c) in a number of countries, recurrent cost responsibilities for HNP and Education subprojects fallon social sector line ministries or state governments which are typically more developed institutionally and have more secure budgets than local governments and municipalities on whom the responsibility for financing road and water supply recurrent costs typically falls; (d) in a number of countries, e.g., in Central America, Social Funds initially emphasized social sector activities and may, therefore, have more experience in this sector; and (e) most Social Fund Task Managers come from Health or Education sectors and are likely to be more sensitive to and knowledgeable about sustainability issues in· education and health subprojects than they are to sustainability issues in other subprojects. Closeness to overall sector activities may also enable Task Managers to better coordinate the various Bank interventions in the sector so that if, for example, schools are built through the Social Fund the securing of complementary inputs, say teachers, receives more attention.

(ii) Differences in the standards for assessing sustainability. There are differences across the sectors in what are considered to be the key requirements for sustainability including conditions for demand-orientation as a prerequisite for sustainability. For example, adherence to existing technical standards for infrastructure was considered an indicator of sustainability in HNP and Education subprojects whereas for economic infrastructure

'lA/ The comparison bere is mainly between rb.e HNPlEducation SCClOr and the Ecoaomic lofrasauCQ.U'e sector; issues in microfinance are somewhat different.

D/ Some small-scale water subprojects (e.g .• wells. baod-pumps) may share this characteristic of education aud health subprojects.

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this was not considered an adequate standard unless the existing standards also happened to be good practice sectoral standards. Similarly, community participation in the consideration of and design of subprojects was considered an indicator of sustainability in HNP and Education sectors, whereas the Community Parucipation and Demand­Orientation section of this review argues that sustainability of subprojects requires in addition that there be institutional mechanisms to sustain community involvement in decision-making in implementation, operation and maintenance, and evaluation of

. subprojects. Moreover, conversations with staff in the two sectors indicate that infrastructure staff seem to put relatively stronger emphasis on the resource contribution by the beneficiary community as an indicator of demand. Furthermore, the economic infrastructure sector requires as a condition of demand-orientation that clients are offered a range of options (e.g., in the choice of goods and services, and technical and service­level options) from which to choose and are provided impartial information to assist clients make informed choices. For HNP and Education components the "consideration of alternatives" is also a condition of sustainability, but there seems to be a difference in what is meant, for example, two projects have been rated "good" in the HNP and Education sectors based on the fact that " .. appraisal criteria cover technical feasibility, labor content, cost sharing, economic rate· of return of no less than 12 percept, .. and cost per beneficiary"26 and "An analysis of project costs compared with SIF unit prices was needed, also cost-per-beneficiary indicators were compared to SIF parameters".27

"'I Nicaragua Soc:iallnves1meDt FuDd. I.

rt 1 Bolivia Social Invc:stmmt Fund I.

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Economic Infrastructure Components of Social Fund Projects28

Findings

• Sustainability of subprojects in the economic infrastructure sectors has not been a design objective in the earlier Social Fund projects, even in those Social Fund projects that aimed at service delivery.29 This was acceptable for the "emergency" Social Funds but it is not acceptable for those with longer term objectives. Social Fund projects have not typically incorporated each of the three key determinants of sustainability which are: (i) evidence of demand (Le., the extent to which projects: offer clients a range of options (e.g., in the choice of goods and services, and technical and service-level options) from which to choose; provide information to assist clients make infonned choices; and require evidence of commitment and interest through cash or in-kind contributions and/or the initiation and completion of organizational tasks as a condition of subproject approval and release of funds) required as a criterion for project selection; eii) the appropriateness of the technical standards to which infrastructure was developed or rehabilitated in the light of this demand and the capacity of the organization receiving the subproject; (iii) the soundness of fmancial, managerial, and institutional O&M arrangements, backed by evidence of the availability of the necessary funds and training. These detenninants of sustainability reflect evolving experience and consensus in a number of sectors and, in particular, have been taken up in the "New Agenda" of the Water and Sanitation Sector since the 1990s.30 Examples of specific projects that illustrate the focus on these determinants of sustainability are the Pakistan North West Frontier Province Community Infrastructure and National Housing Authority Strengthening Project, the Bolivia Rural Water Supply and Sanitation Project, and the Zambia Urban Restructuring and Water Supply Project.31 The three sustainability measures have not yet been incorporated systematically in all of the non-Social Fund sector projects, but there is a growing consensus among sector staff regarding what constitutes good practice for sustainability of economic infrastructure, as reflected in recent projects in rural and peri-urban water and sanitation and in rural transport.

• As discussed earlier, only a small proponion of Social Fund projects require conununity groups to make upfront financial contributions to gauge effective demand and commitment. There is

u, The Working Group defines economic infrasaucture as including projects in water and sanitation. and aanspon (for example. roads, bridges, and paths). EconOmic lnfrastn.u:cu.r here docs not include investments in health, education. or other social facilities. AU Social Fwxl projects include economic infrasaucture components (of the amount of roughly one-dlird of total project cost) although they may not be classified as sucb. for example. water and sanitation are classified as social infrasuucture in some Social Fund projects. The analysis here is based on a sample of 22 Social Funds which include sizeable economic infrastructure components. and which are in counaies with repeater Social Fwxl projects or with comparable nOD-Social Fund projects (viz .• Bolivia Emergency Social Funds I and n and Social Investment Funds I and n. Senegal Public Works and Employment projects I and n. Zambia SRP I and n. Haiti Economic and Social Fund. Honduras Sociallnvestmc:Dt Funds I. n. m. Egypt Social Funds I and n. Sri Lanka Poverty Alleviation project, Ethiopia Pilot Social Rebabilitation Fund and Social Rehabilitation and Development Fund. ~ali Public Works and Capacity Building project. Albania Rural Poveny Al1e\'i!lticm project, Nic3rngua Sociallnvesanent Funds I and II. Annenia Social Investment Fund). Sraff Appraisal Reports for these Social Fund projects were reviewed. and Operation Manuals and supervision reports for a sub-sample of the 22 Social Fund projects were examined. 'Ibis subsection on Economic Infrastructure is based on ·Social Funds: Review of the Economic Infrastructure Components for the Portfolio Improvement Program· • Dcepali Tewari. background paper for this review, Draft. December 1996.

-, Overall, achieving subproject susrainability is specifically mentioned as an objective in about one-fifth of the Social Fund projects .

• / See ·PIP Review of Water Supply and Sanitation Sector-. TWUWS. World Bank.

'I, Examples discussed in ·Social Funds: Review of the Economic InfrasU'UCturc Components for the Portfolio Improvement Progmn-. Deepali Tewari, Background paper for this review, Draft. December 1996.

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little expost information available on the actual amount of capital costs contributed by beneficiaries. Anecdotal evidence suggests that the appraisal estimates for such contributions are not consistently realized.

• There is little evidence in the Staff Appraisal Reports that Social Fund projects review the appropriateness of standards (e.g., width and surfacing of roads) to which infrastructure is developed in the context in which the investments are to take place. Social Fund projects often aim to develop infrastructure to nationally mandated standards. These standards in the developing world have typically not been appropriate to deliver the level of services users want and are willing to pay for, or appropriate given local capacity to undertake O&M. It is not clear whether projects analyze the recurrent cost implications of infrastructure developed to different technical standards and service levels, whether these recurrent costs are a factor in the choice of technical standards adopted, and whether recipients are infonned of O&M costs before they choose a particular type of service. Where Social Fund projects support rehabilitation (rather than new construction) of works, it is possible they may be investing in the rehabilitation of infrastructure developed to inappropriate standards· in the first place.

• In Social Funds where public sector agencies are eligible sponsoring agencies, they receive a sizeable share of Social Fund resources for economic infrastructure. The sustainability of investments in these cases will remain closely tied to the availability of budgets to finmce recurrent costs - an issue that cannot be addressed in the absence of sectoral reform (in particular of pricing), and reform of public sector management and financing (e.g., introduction of commercial incentives in service delivery, improved expenditure planning and budgeting, and intergovernmental fiscal reform), J2 Therefore, sustainability of Social Fund investments depends on concurrent activities to support these refonn processes and institutional policies.

• Monitoring systems by which a Social Fund project can get quantified information on the extent to which subprojects are being operated and maintained have typically been lacking. The more recent Social Fund projects do include comprehensive monitoring systems.

• There is lack of consistent involvement of economic infrastructure specialists in Social Fund projects. Based on the Bank's MIS and SAR supervision plans, this review found that out of 20

. Social Fund projects with available information, no economic infrastructure specialists participated in supervision missions in 6 projects; and in 8 projects, economic infrastructure specialists (mainly engineers) participated in less than half of the supervision missions.J3

n, In the Mauritania AGETIP-variant project called Urban Infrasuucture and Pilot Dec:enttalization project (I Social Fund·Related project by the classification of this review). muniCipalities are required to establish a three-four year investment and maimeDancc plan formulated as a -municipal conttact- which is published and audited before any subprojects are let out for bids - this is dODe with dle purpose of securing recurrent cost funding for the subprojects upfront.

l3, The 20 projects include: Bolivia ESF I and n. and SIF I and n. Senegal Public Works aDd EmploymemI and n. Zambia SRP I and n. Haiti Economic and Social Fund. Honduras FHIS I. n. and m. Egypt SFD I. Sri Lanka Poverty Alleviation project. Ethiopia Social Fund I and n. Mali Public Works and Capacity Building. Albania Rural Poverty Alleviation. Nicaragua SIF I. Armenia SIF. The two projects from the original sample of 22 for which DO infonnation was available on tile participation of economic infrasuuc:am: specialists in supervision missions include Nicaragua SIF n and Egypt SFD n. The 6 projects with no participation of economic iDfrastn:acIun: projects reponr::d in the MIS or ,SARs are: Bolivia ESF I and n. SIF I and n. Albania Rural Poverty Alleviation project, and Sri Lanka Poveny Alleviation project (Task Managers have indicated that in Bolivia SIF n. the locally·based UNDP-WB Water unit was involved in supervision from about the 19905. in Albania a Trust Fund-fmanced economic infrasauc:ture specialist participated in the preparation of the follow-on Albania Rural Development project and he was also involved in supervising the first project; and in Sri Lanka an economic infrasuucmre specialist was involved in the Mid-1am review and thereafter). The 8 projects with economic infrasU'Ucture specialists participating in less than half of dle supervision missions include: Zambia SRP. Haiti Economic and Social Fund. Honduras PHIS I, n. and m. Zambia SRP n. Ethiopia Social Fund n. Armenia SIP, In the case of the three AGETIPs in the sample. economic infrasttucture specialists participated in all supervision missions. The three AGETIPs IJ'e Task Managed by economic infrasuuC11l.re staff. All figures are based on MIS dara which refers to acmaJ participation of economic

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• There is evidence of inconsistency between Bank-supported Social Fund projects and non-Social Fund projects concerning the rules for expressing demand in the economic infrastructure sector and the criteria for sponsoring agencies to obtain funds, even in the same country ,34 Such inconsistencies can lead to confusion among beneficiaries and implementing agencies and undermine sectoral refonn efforts. Although the study of a sample of Social Fund projects identified onJy a minority of countries where this inconsistency has become a significant concern to sectoral staff, the potential for replicating the problem exists as long as there is little coordination between Social Fund project teams and infrastructure sector staff in the Bank.

• Over time, Social Fund projects have increasingly focused on issues pertaining to subproject sustainability. This is most evident in the post fiscal 1994 period. The Ethiopia Social Rehabilitation and Development Fund represents the case of a Social Fund project which incorporates a number of sectoral good practices for sustainable service delivery; See Box 5. The Zambia Second Social Recovery Project (discussed earlier in Box 4) also qualifies as a good example of a Social Fund project with sustainability features.

Recommendations

• If a Social Fund project has as its objectives to provide improved coverage of services (as opposed to short term emergency reliet), then the three key design elements that lead to sustainability: evidence of demand (Le., the extent to which projects: offer clients a range of options from which to choose; provide information to assist clients make informed choices; and require evidence of commitment and interest through cash or in-kind contributions and/or the initiation and completion of organizational tasks as a condition of subproject approval and release of funds); appropriateness of technical standards; and sound O&M anwzgements, should be integrated upfront into Social Fund design and appraisal criteria. This requires ensuring that the intermediary organizations that prepare and sponsor subproject proposals are committed to these criteria as well and capable of applying them.

• The performance indicators monitored 'for Social Fund projects should include reasonable evidence that the above sustainability criteria are being followed in subprojects. Social Funds should monitor as systematically as possible the extent to which investments supported by them are being utilized and maintained, as well as how much revenue is acrually collected for cost recovery purposes and how it is used.

infrasU'Ucture experts in supervision missioDS as of November 13 1996. and Staff Appraisal Repons dara which refers to planned participation of economic infrastructure expens.

"'/ For example, the PCR 15166 of the Senegal Public Works and Employment project (AGETIP), World Bank. 1995, pages 4-5. para 21 notes: • ... (the project) may have bad a negative impact on the execution of the MuniCipal and Housing Development Project which provided credit through a Municipal Credit Fund for financing municipal income generating projects such as rnarket rcbabillmtion and coDSuuction on commercial tenns with an interest rate of 10.5 pcrcenL Under the Public Works and Employment project.. on the other band. beneficiaries (i.e., municipalities) were not requested In reimburse the cost of the social infrasauClUre works executed on their behalf. This may put the Public Works and Employment project in di.rect competition with the Municipal and Housing Development project. NllUralIy, the beneficiaries (i.e •• municipalities) went to AGETIP which provided the works free of charge. rather than go to the MUnicipal and Housing Development Project where they had to borrow although for different purposes (social infrasaucture versus economic infrastructure). The result is that the Municipal Credit Fund component of the Municipal and Housing Development Project bas been disbursing more slowly than foreseen at appraisal. Similarly, in Bolivia the SIP financed municipal water and saniration sys1I:mS on a grant basis in poor municipalities or neighborhoods. FNDR. dle municipal bank financed the same sysems through lending. Due to dle lack of common mles OD project eligibility (technical slaDdards and poverty criteria). projects rejected by FNDR because of technical inadequacies got financed by SIF on poverty grounds. Also see -Rural Water Supply and Sanitation in Bolivia: From Pilot Project fD National Program-. Jennifer Sara. Alexandre Gross. Caroline van den Berg. Water and Sanitation Program, May 1996: -ProjelS De DeveJoppcment Urbain En Afrique Francopbone-. Catherine Puvacque and L. Godin. AFSIN. World Bank. 1996; and Senegal Public Works and Employment Project (AGETlP). OED Audit., Draft., 1996.

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• Where public sector agencies receive the bulk of Social Fund resources for economic infrastructure, complementary public finance refonns should be supported to ensure that continued O&M resources are available for Social Fund-supported activities. These reforms may be promoted by operations other than the Social Fund project itself, but should form part of the country assistance program for the country. Such refonns are particularly important in the case of AGETIPs where sustainability of investments depends in large measure on local government fmancial capacity.

• The emphasis of some Social Fund projects on rehabilitation of infrastructure rather than the construction of new infrastructure can improve the likelihood of the facilities being operated and lnaintained because they are already part of a current service provision system. Also, in some countries rehabilitation might be a greater need than new construction. However, rehabilitation can limit the technical choices as well as the choice regarding the location of the infrastructure; if both of these are not in line with what conununities demand and are able to maintain, ,the rehabilitation option should not be chosen.

• Social Fund projects that have long term service delivery objectives (the non..emergency group) should strive to make investments in the economic infrastructure sectors in accordance with noons and' rules which reflect evolving sectoral good practice.35 If national policies in the sector are at odds with the Bank's good practice guidelines, the design of Social Fund project investments should still incorporate sectoral good practices so that these investments can have a demonstration . effect for governments. 36 Where this is not possible, it is preferable not to fund investments in these sectors through a Social Fund unless the component is extremely small.

• The Bank should monitor the consistency of Social Fund policies with other Bank projects in the same sector. Social Fund projects should also be consistent with sectoral policy reform programs in the same country. The rationale for doing a Social Fund project should be argued in the Country Assistance Strategy in relation to alternative mechanisms for meeting sectoral objectives.

• The involvement of economic infrastructure specialists in the design and supervision of the economic infrastructure components of Social Fund projects is essential for ensuring consistency with sectoral good practices aimed at improving the sustainability of the services provided. In order to ensure that sectoral policies and practices supported by the Social Fund are consistent with those advocated by the Bank for that sector, those economic infrastructure specialists should preferably be Bank staff; or where this is not possible, consultants familiar with Bank: sectoral policies should be used and Bank sectoral staff should be involved in a Peer Review capacity.

U/ Sectoral best practices in water and sanitation lending are outlined in the Bank's Water Resources Policy Paper (1993) and die funbcr elaborated in Briscoe and Gam (1995), Gam (1995), Sara, Gross. van den Berg (1996); for roads in Heggie (1995): aud for urban services and urban water and sanitation in Kessides (1997).

"'1 In Uruguay. government sectoral staff were moved 10 the Social FUDd for four years with a view to enable them to learn about the good practices being followed in the Social Fund. and to pilot aod experiment and then 10 reblm CD sector minisaies to implement their innovations.

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Box 5: Incorporating Good Practices for Sustainable Service Delivery: Ethiopia Social Rehabilitation and Development Fund

The Ethiopian Social Rehabilitation Fund (ESRF) was created in 1992 as a thirty-month pilot project under the Ethiopian Recovery and Reconstruction program. The intention was to detennine whether a specialized financing agency could jump-stan the process of participatory community-based development to empower local communities. The pilot project has been followed-up by a US $142.4 million Ethiopia Social Rehabilitation and Development Fund (ESRDF). The main objective of the expanded ESRDF is to provide poor. mainly rural communities the assets and services needed to improve their economic and social standards through sustainable development initiatives. The ESRDF expectS to invest about 64-percent of its project costs in economic infrastructure. i.e., rural water supply, small-scale irrigation. and urban sanitation. The economic i.nfrasnucture component of ESRDF is consistent with sector best practices and appears well­deSigned to meet its sustainabiliIy objective. Eligibility criteria for ESRDF financing include a minimum 10 percent community contribution for capital costs in cash or kind with a higher contribution to be encouraged where feasible. The project aims to develop .infrastruCture to standards commensurate with the community's technical. managerial, and financial capacity. Amngemenrs for cost recovery to finance maintenance appear to be in place: a clear contract in the

, financing agreement concerning maintenance responsibilities of the sector bureaus and communities; a specific maintenance schedule and standards; an organizational structure at the community level responsible for managing the assets or services; ensuring availability of spare parts and maintenance services and technical training in maintenance of community specialists; and agreements for monitoring maintenance and screening new proposals based on maintenance performance. The rural water supply component of ESRDF complements the National Rural Water Supply Program, and will be managed and supervised by the Rural Water and Sanitation Group of East Africa from Nairobi. This group will work in close collaboration with the rural water supply component of the proposed IDA Ethiopia Water Supply Development and Rehabilitation project. The small-scale irrigation component of ESRDF will be supervised by a Bank irrigation specialist.

Source: Interview with Gita Gopal, 1996.

Education and Health, Nutrition and Population Components of Social Fund Projectsl7

FindiniS

• In general, the HNP and Education subproje'cts of Social Fund projects are likely to be sustainable and show good design based on the'specific sustainability criteria adopted - which as noted earlier (Section V C, pages 28 .. 29) are not exactly comparable to the criteria used for

'7/ The aualysis bere is based on a sample of 22 Social Fund projects selected according to me following criteria: a high proportion of subproject lending for HNP and Education: sufficient information available ro judge effects on HNP and Education; fiscal 96 projects generally excluded unless they were sccoDd geDC:f'l.DOn projects. following a pilot. first phase or emergency project; aDd emergency and employment­generating fund projects including AG£TIP projects generally excluded as SUSlainability is not a relevant objective of such funds. The 22 sample projecs:s arc the Social Funds in Albania Rural Poverty Alleviation Pilot. Albania Rural Development. Armenia Social Investment Fund. Bolivia Social lnvesanent Funds I and U. Egypt Social Fund I and n. Eritrea Community Rehabilitation Fund, and EriIrca Community Development Fund, Ethiopia Pilot Social Rebabili1alion Fund. Ethiopia Social Rehabilitation and Development Fund. Honduras Social Fund U and m. Madagascar Food Security and Nutrition. Madagascar Social Fund n. Nicaragua Social Fund I and n. Peru FONCODES. Senegal Public Works and Employment I and n. and Zambia SRP I and n. Staff Appraisal Reports for all sample projects. aDd Operational Manuals. Supervision repons. and available evaluations for I selected m.unber of the sample projeecs were reviewed. An analysis of the leading volume of Social Fund projects going to Health. Nutrition. IDd Population (HNP) and Education sectOrs indicates that about 31 percent (US $412 million) of total Bank Group lending for Social FUDds from 6sca.l 1987-96 bas been for these secton, roughly equally divided between HNP (US $190 million. or 14 percent) and Education (US $222 million. or 17 percem). Lending for HNP and Education UDder Social FUDd projects. was coacennted.like Social Funds as a wbole. on Latin America and the Can'bbean and Sub-Sabaran Africa. A quaner of the Social fuDd projects bad less chan 12 percem of their funds going to HNP IDd Education. including 8 out of 10 AGBTIP projects in Africa • which 1arply explains why the combined share of lending going to HNP and Education together was lower in Sub-Sabaran Africa than in Latin America and d:ae Caribbean. LeDdin, under Social Fund projects represents about 2 perceIlt of row Bank lel'.ld.ina for both HNP aDd Education.

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Economic Infrastructure.38 The Nicaragua Social Investment Fund I represents a good practice example of a Social Fund project that incorporates sustainability considerations with respect to HNP and Education subprojects; see Box 6. Box 7 provides individual good practice examples.

• Most Social Fund projects show good evidence of "community demand- (defmed here as community participation in the consideration of and design of subprojects, community contributions in~kind and/or financial, technical help to poorer communities provided for proposals, low proportion of proposals from government line ministries) for HNP and Education components.39

• Almost all physical rehabilitation and construction under Social Fund HNP and Education components are designed to have appropriate physical standards with systems to verify this.40

• Almost all HNP and Education components of Social Fund projects are generally compatible with broader health and education policy; all have line ministry involvement in the subproject cycle and almost all second generation projects are part of a larger development strategy. 41

• In general, the economic analysis of HNP and Education subprojects in Social Funds is superior to that in HNP and Education sector projects. However, there is scope for more economic analysis. In a few Social Fund projects, the economic analysis requirements may go too far 42

• Not enough training plans are being translated into actual training. This is the case even in the better Social Funds . .o

• A majority of projects made adequate arrangements to ensure that recurrent costs were financed

)1/ The criteria used to assess sustaioability of HNP and Education subprojects are: Community demand (community participation in consideration of and design of subprojectS. community conaibutions in·kind and/or financial. tccbnical belp CD poorer communities provided for proposal preparation, and high proportion of proposals from government line minisaies (negative marker): alhrnatives (consideration of alternatives in the design of the subproject, and cost-effectiveness and/or cost benefit analysis); physical standards (adherence to any existing technical standards for inftastruC1Un::. presence of teehnical expert in the design and evaluation of the subproject. and separate technical subc:omp~)Oent); recurrent rJDaDQug (evidence of availability of funds through, for example, cost-sharing agreenx:ms. budgets etc), explicit agreement on organization(s) responsible for the recurrent costs; policy compatibility (instirutions and programs alrc:ady in existence. evidence that design had policy compatibility in mind, line ministry represemation on Social Fund Board, consauction permissions obtained from line ministries; institutional capacity (imtitutiooal assessment. ttaining and capacity.building components of SI,lbprojc:Cls); monitoring system (discussion of existing system. evidence that a system will be set up).

1t/ It may also be noted that the definition of ·community demaDd- used here differs somewhat from the definilion used in other pans of this review and which are articulated in Section V B.

fIJI It may be noted that existing or nationally mandated standards are refCl'1'ed to here which may not necessarily be good practice sectoral standards.

41/ Line ministry involvement in economic infrastruC1Un:: components of Social Fund projects is deemed approprille only wben line minisay agencies suppon policies that foster demand-orientation, identification of appropriate technical options and ~. and instimtional and financial arrangements for adequate operations and maintenance of subprojects.

ql For example. the Ethiopia Social Rehabilitation and Development Fund requires rate of return calcular:ioDS for HNP and Education subprojects which may DOt be particularly lISetUl in situations of low education enroUtneDt ratios and low access to beaJth care.

4)/ At the midterm review of the fiscal 1990 Bolivia Social Investment Fund I Project it emerged that no train.ing W1S ac1Ually being provided in the usc, administration. and maintenaDCC of health subprojects, despite the existence of a plan. In BoliVia. die ttaining of teachers was intentionally omitted in the first generation project and left to a fumre educational reform project - this proved ID be a mistake. Both issues are addressed in the follow-on project.

but there are cases where this was not SO.44

Box 6: Nicaragua Sociallnves1ment Fund I

Created in 1990. the Fund's objective is to "help the Government sustain its poveny alleviation effons and maintain social cohesion during the period of economic adjustment until line ministries could strengthen their institutional capacities". The targeting mechanism was a poveny map based on population, child malnutrition. access to potable water. and basic sanitation indicators. SusraioabUity was addressed by:

requiring conttibutions both from the community (S percent) and the sponsoring agency (15 to 25 percent);

ensuring that the recurrent costs are covered by the responsible ministry and analyzing the implementing agencies' ability to provide for the recurrent expendirures;

a complementary program to improve the budgetary and financial management capacity of the social sector ministries;

developing a component for the subprojects providing training to local communities in the maintenance of subprojects; and

technical assistance to implement a welfare monitoring system.

Source: Staff Appraisal Report.

Recommendations

• More attention needs to be paid to recurrent financing, especially for first generation Social Fund projects. Organizational responsibilities should be clearly specified and not too complex. Attention also needs to be paid to the ability of the responsible party to meet these obligations.

• Establishing the 'Tesponsibility for and ensuring the availability of recurrent finances is not enough. Attention also needs to be given to the actual meeting of the recurrent obligations, for example, securing complementary inputs for the operation of the infrastrucmre that is created (e.g., teachers for schools).

• More assessment of the administrative capacity and incentives to operate schools and health centers that are supponed by Social Fund projects should be undertaken. More attention should also be devoted during supervision to the actual implementation of training components, for example, there should be explicit attention given to the availability of andlor training of qualified staff to run the schools and the health clinics. If training is necessary, it must be ensured that training plans are being translated into actual training; it may not be enough to wait, for example, for a future education reform project. Training programs should also be assessed to detennine their effectiveness.

44/ For example. in the Albania Rural Poverty Alleviation PUot project, the community maintenance fuod was esa.blisbed but villagers still took: the view that schools and clinics were JOvcmment assets and that therefore the: Jovernmcnt should mainlain tbem. In the Eritrea Pilot FUDd. the financing of leacher salaries was secured. but teacher shonage were experienced in the first year of Ihe Fuad's operation.

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• There is scope for more economic analysis; simple quantitative economic analysis would be useful for all subprojects considered not just a subset. However, the costs of undertaking economic analysis for very small projects should be explicitly considered and such analysis should be undertaken only if justified. It is necessary to ensure that the economic analysis requirements do not go too far.

• All Social Fund projects should contain an adequate impact monitoring system. Without such monitoring, it may be impossible to correct specific design and implementation errors.

Box 7: Individual Good Practice Examples in Health, Nutrition, and Population (HNP) and Education Sectors

Demand • Nicaragua: Targeting goals met with strong promotion in poor areas and extensive technical assistance provided

to those who lack project preparation capacity. • Zambia: Promotional activities in provinces include explaining procedures and identification.

Alternatives • Annenia: There had to be no other plans to provide such facilities in area; appraisal of all subprojects in a

region to permit selection of best. • Ethiopia: economic analysis requirements (though too demanding for some subprojects).

Physical Standards • Eritrea: Buildings must meet established standards, with appropriate modifications for climate. • Nicaragua: Subprojects are coordinated with line min.istry to ensure that physical standards and norms are met.

Recurrent Financing • Nicaragua: Ability of implementing agency to provide for recurrent expenditures is analyzed along with its

financial state. • Ethiopia: Contracts among communities, regional offices of line ministries and regional governments specify

who will pay for what (e.g., staff, maintenance. etc).

Policy Compatibility • Ethiopia: Consistency with the broader education and health sectoral strategies is to be achieved through the

regional steering comm.ittce that ensures that subprojects fit into regional development goals. • Zambia: Provincial Planning Units must submit a letter verifying that a subproject is consisttDt with provincial

plans.

Institutional Capacity • Bolivia: Institution proposing to carry out a subproject must have its administrative capacity evaluated. • Armenia: Training and tecbnical assistance provided by linking small contractors, implementing agencies and

communities with qualified training institutions.

Monitoring Systems • Bolivia: Each subcomponent has its own supervision indicators. • Ethiopia: Accounting and monitoring set-up initWly and later expanded to also monitor welfare. targeting. and

goverrunent policy compatibility.

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Micrormance Components of Social Fund Projects45

Findings

• The majority of Social Fund projects that support microfinance have been rated favorably in teons of overall performance in the last fonn 590s. It appears that the overall Social Fund project ratings do not adequately capture the performance of the microfinance component especially with respect to the sustainability and institutional development impact of the subprojects financed by the Social Fund and may, therefore, be misleading. Attachment vm highlights the main design and implementation issues in nine Social Fund projects with micro finance components.46

• The lessons learned from the experience of successful micro finance programs - programs which are no different from the ones supported by Social Fund projects - reveal the importance of offering a range of financial services at full cost (loans as well as deposits) as well as building a client relationship based on repeat clients who have proven their capability to repay their loans. The majority of Social Fund projects do not meet the good practice guidelines for providing sustainable fmancial services to the poor although there are some exceptions. The Albania Rural Development Fund is an example of a Social Fund that is supporting the delivery of financial services in a sustainable manner; see Box 8.

• Social Fund projects do not generally address institutional development issues in terms of the microfinance activities as emphasis is placed on contracting the services of a number of individual NGOs rather than improving the capacity of a network of institutions or the development of a financial intermediation system. Thus, the microfinance practices in place for a majority of the projects have not evolved at the same pace as successful microfinance programs which utilize a financial systems approach to capacity ... building.

• Only six of the 15 Social Fund projects provide a specific breakdown for the estimated share of Bank resources allocated to the microfinance component in the Staff Appraisal Report; based on information for these six Social Fund projects, the average size of the microfinance component as a percentage of the Bank amount is about 20 percent. The remaining nine Social Fund projects include microfinance activities as sub--components in other components. These components are typically community development activities under which microfinance activities are a minor part

4S I Based on a da13base being completed by CGAP for their microfinance portfolio review and an earlier list of Soc:iaI Fund projects prepared by the Working Group. IS Social Fund projects or almost 30 percent of the total Social Fund projccts approved up to en(Hiscal 1996 were identified as comprising microfina.nce activities within Social Fund projects. These IS Social Fund projects are: Albania Rural Poverty Alleviation project, Albania Rural Development Fund. Argentina Social ProteCtion project, Burundi Social Action Program. Egypt Social Fund, Egypt Second Social Fund. EriU'ell Community Development Fund. Honduras Social Investment Fund. Honduras Second Social Investment Fund. Madagascar Food Security and Nutrition project. Madagascar Social Fund n. Peru Social Development and CClmpensarion Fund. Sri Lanka Poverty Alleviation project. Zambia Social Recovery project, and Zambia Second Social Recovery projecL The foUowing Social Fund projects were not included for an in-depth review although a microfina.nce component is mentioned in the Sraff Appraisal Repon: (i) Sao Tome and PriIIcipe Sociallnfrastrucmre Fund (discussions with the Task Manager revealed 1bat the componentdid not relate II) microfinanc:c but II) a small and medium enterprise subcomponent); (0) GllIlCmala SociallnvesllDCDt Fund (microfinancc activUics are DOt fiDaDc:ed by the Bank); aDd (iii) Bolivia Emergency Social Fund I and n (the Staff Appraisal Reports did DOt provide adcquau: information II) deamn.ine if the credit activities were for microfinance). The IS Social Fund projects cover 10 countries of which five counlries have repeater Social Fund projects wiIb microfina.nce components (i.e., Albania. Emt, Honduras. Madagascar. and Zambia).

"", Of the 15 Social Fund projects with microfinance components covered in this review, six Social Fund projects which were either recendy approved or included minor microfinance activities were not considered for fun:ber analysis (Argentina Social Protec:rion. Emt Second Social Fund. Eritrea Community Developmem Fund. Madagascar Social Fund n. Zambia Social Recovery project. and Zambia Second Social Recovery project).

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of the component's assistance; the microfinance sub-components are not assigned clearly identifiable costs and objectives. Such a general description of microfinance components raises serious doubts about the achievement of objectives and sustainability of these components.

• The involvement of microfinance specialists in the design of microfinance components of Social Fund projects is typically low or absent.

Recommendations

• The performance of microfmance components of Social Fund projects can be enhanced by incorporating lessons learned from good practices of successful microfinance programs. A micro finance component of a Social Fund project which is anchored on the implementing capability of the sponsoring agency, fmancial viability of the participating institutions, and the sustainability of financial services provided will be in a better position to improve access of the target group to appropriately priced quality financial services.

• The microfinance component should be designed as a separate component with clearly identifiable project costs and objectives, rather than incorporating it as a micro finance sub--component in a larger component executing unrelated activities. The micro finance component should be designed by an expert in the field to avoid design deficiencies which leads inevitably to unsatisfactory implementation performance.

• A micro finance component is best administered by an existing agency as an apex institution to avoid delays in stan-up. However, in cases where the creation of a new agency is necessary particularly to achieve operating management autonomy, project design should include funds for institutional development and a realistic time frame for the agency to become fully operational before resources for micro finance are disbursed.

• The sponsoring agency should manage the microfinance component as a function which is separate from the social services function to avoid the overlap of loan and grant·based operations and the wrong signals that grant·based operations might send to micro finance borrowers.

• During the design stage, an assessment should be made of the capacity of the first tier intermediaries to be used by Social Funds, in tenns of their experience, stage of development, and performance. The focus should be on building the capacity of first tier intermediaries to provide sustainable financial services rather than merely providing funds for onlending to the intermediaries for a limited period. Specialized agencies and consultants may be contracted to provide technical assistance where appropriate. When a large number of microfinance intermediaries are charged with executing microfinance activities, the Social Fund project should identify experienced umbrella organizations. These networks will require less institutional development than individual institutions. In addition, a parmership arrangement with experienced networks will facilitate me sponsoring agency's monitoring of services targeted to me poor as well as the perfonnance of the intermediaries.

• Experience shows that NOOs, generally, are not capable of providing the range of financial services required by the poor on a sustainable basis (particularly deposit services). Therefore, it is desirable that microfinance intermediaries are diversified from a heavy reliance on NO Os by including other intermediaries.

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• When microfinance institutional channels are not in place prior to the Bank loan, the component should be designed first as a pilot and only expanded as experience is gained and relevant lessons drawri from implementation experience.

• The regular supervision of the micro finance component by a micro finance expert can improve the chances of achieving sustainable micro finance outcomes. Extensive supervision by a microfinance expert is particularly important in projects in which an innovative model is being introduced.

• Major policy issues such as interest rates are difficult to resolve during the supervision process, particularly for smaller components. Such policy issues need to be addressed up front at project preparation and appraisal stages or through concurrent operations.

Box 8: Building a Sustainable Micrormance Program: Albania Rural Development Fund

In 1992. Albania began a Rural Poverty Alleviation Program which included a component for small-scale credit. The program was based on a participatory approach which was implemented in three phases. During the pre-pilot phase (1992-93) the village fund concept was tested in seven villages to ascenain the performance of this model in the Albanian setting. As the participation ofvil.lagers in managing the village credit funds was crucial to the outcome of this innovative model. the needs of the borrowers were assessed thoroughly. The results from the pre-pilot phase were used as a basis for developing financial intermediation at the village level under the Rural Poverty Alleviation Pilot project (1993-95). Under the pilot project. sound banking principles were supported. for example. the interest rate was set at a level that would cover the cost of services provided. and collateral requirements were tailored to the case at hand taking account of the amount borrowed. the riskiness of the proposed activity. as well as the creditworthiness of the borrower. Loan repayment rates in the pilot project were close to 100 percent.

The experience gained from the pre-pilot and pilot phases led to the current full-scale project., the Rural Development Project. Under this project. village credit committees (comprising the village head and at least two other villagers elected by the villagers themselves) retain responsibility for screening borrowers. evaluating borrower needs, and administering loans. The small average loan size (US $380 in the pilot project) is an additional instrument of targeting the poor. Technical assistance focuses on strengthening the partnership between the various parties involved, i.e., the Rural Development Fund. village credit committees. and the borrowers. Savings mobilization is becoming a key element of the project.

Source: Interview with Kathryn Funk. 1996. Staff Appraisal Repon.. Supervision Repons, Project Completion Repon.

D. Internal Efficiency

Findings

Cost and time savings, leveraging donor resources, enhancing the private construction/consulting capacity

• Social Funds are subject to limits on their administrative costs as a percentage of the value of project disbursements and this indicator is often tracked. Social Fund a.dmiitistrative costs are often less than 10 percent of disbursements, although it is difficult to make clear comparisons among administrative costs of different Social Funds because of differences in accounting. There is some anecdotal evidence that the low overhead requirements might be encouraging larger, rapidly completed, and quickly disbursing subprojects over smaller, supervision-intensive projects . involving community participation.

• There is some evidence to show that Social Funds are able to construct infrastructure at lower cost than public agencies with the cost savings reaching up to over 50 percent in specific cases.47

• There is also some evidence that Social Funds construct infrastructure within a lesser time compared with public agencies.48 In some cases, the simplified bidding procedures are resuldng in time savings.49

• Social Funds have been effective at leveraging donor resources;50 if they are designed right, the positive effects get multiplied as other donors follow suit.

• While no rigorous studies exist on this issue, it is widely held that an important contribution of AGETIPs has been to enhance the private construction/consulting capacity at the local level. In most countries, AGETIPs have spurred the growth of local consulting firms and construction companiesSI and in many cases AGETIPs have provided them training to improve their effectiveness and competitiveness.

"'1 For example. reviews suggest thaI classrooms built under Honduras's Social Fund cost many times less CD build man ministry-supported classrooms. In Sene,aI. AGETIP-supponed projects are able CD achieve unit prices S CD 40 percent lower tban government programs. In the Ethiopia pilot Social Fund. the cost savings in the coDSUUction of specific education. health. and water infrasauctuJ'e compared to public agencies ranged from 10 to 30 percent. In Eritrea's pilot Social Fund, cost savings for similar activities ranged from 610 over SO percent.

41, For example, in Ethiopia's pilot Social Fund. the savings in time in the construction of specific education. health. and water infrasuucture compared with public agencies ranged from about 30 percent to almost 70 percent •

." It takes Senegal's AGETIP two months to complete the whole bidding process. while it takes the administration six months to do the same. In the Honduras FHlS. while line ministries sometimes take up 10 a year to compleu: the bidding process. Sodal Fund managemennul"DS in a bid for the same type of project wi1hin a month.

!/J)/ The Bank finances a much larger percencage of the total project cost for poverty targeted projecu (about SI percent) compared with that for Social Funds (about 3S percent). However. other donors finance a far higher percencage of cotal project cost for Social Funds (42 percent) compared with that for poverty mrgeu:d projects (28 percent).

", In the Senegal AGETIP, the number of engineering firms rose from about 80 in 1991 to more than 300 in 1996. and the number of registered construction enterprises soa.red from 3S0 to 1,900 during the same period. See Senegal PAR Public Worts and Employment Project. OED. World Bank. Draft. 1996.

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Staff time and budget for preparation and supervisio~S2

• The total staffweeks (Bank and Trust Fund, and on preparation and supervisionS3) as well as the

corresponding dollar amount is lower for Social Fund projects compared with comparator poverty targeted projects, comparator education and health projects, comparator economic infrastructure projects, and comparator participatory projects. Only Social Fund-related projects and DIPs record lower total staffweeks and dollars than Social Fund projects. AGETIPs record the lowest staffweeks among all cohorts of projects at 69 staffweeks; the corresponding staffweek figure for non-AGETIP Social Fund projects is 183.54 Table 6 presents the staffweeks and dollar amounts for Social Fund projects and comparator projects.

• A breakdown of the staffweeks into preparation versus supervision staffweeks shows that Social Fund projects receive more or less the same supervision staffweeks compared with all comparators except Social Fund-related projects and DIPs. It is on the preparation staffweeks that Social Fund projects receive less staff time than all comparators except Social Fund-related projects and DIFs.s5 As Social Fund projects increasingly address issues relating to community participation, demand-orientation, and sustainability, their preparation time could lengthen in some cases.

• There is a perception that Social Fund preparation and supervision are heavily financed by T:ust Fund resources. Our analysis showed this not to be the case. Overall, Social Fund projects receive more Trust Fund staffweeks than only two of five comparators and less or same for the remaining three. Interestingly, Social Fund projects receive less Bank staffweeks compared with all comparators.

Project implementation Units (PIUs) versus Social Funds

• The independent status of Social Funds makes them somewhat analogous to traditional "project implementation units It (PIUs) which have been set up under many Bank projects as special­purpose enclave agencies to manage implementation outside of normal personnel, procurement, and other procedures of the government. Like Social Funds, PIUs have been created as a response to the absence of institutions considered capable of executing project activities; in addition, PIUs fiil the need for coordination of the many actors and components involved in a

"'/ Other donor conttibutions to Social PUDd project preparation IDd supervision (staff time and dollar amoums) are not included here except when in the form of Trust Funds.

511 Preparation time is defined as mffwccks recordect against the Social Fund project from IEPS date to Board approval dare. The average annual staff weeks spent upto cnd-fiscal 1996 in supervising the implementation of the Social Fund projec15 and comparator poveny 13rgeited projec15 were calculated nather than the total supervision staff weeks expended. This is because different projects began to be implemented at different times. The total number of staff weeks spent supervising a project was dividcd·by the number of weeks the project bas been going on. and the result was multiplied by 52 to arrive at a figure for average annual supervision staff-weeks for each proJect.

"'I The Internal Auditing DcpartDle'Dt n:pon -Repon on an Audit of Portfolio Supervision of AGETIP Projects- identifies a number of reasons for the preparation and supervision casu for AGETIPs. These include: close attention in the preparation oftbe early cohon of AGETIPs to agency staffing. systems. and procedu.re:s and the resulting ·proven· designs could be efficiently applied to lalet AGETIP projects reducing preparation effon; the use of a pilot phase allowing for adjusunena before fu.l1·scale operations began for each new agency; the netwOrking of agencies (AFRlCATIP) to address <:ammon implementation problems independemJy of donor supervision cycles; comprehensive activity reponing; and regular financial, management. and ~c:al audia of tile agencies allows Bank staff to focus with dleir agency parmers on problem resolution rather than problem idenrification.

SS / Some Bank staff have pointed OUt that die lower preparation time for Social Fund projects may result from the fact that Social Fund projects reproduce a well·u::sted -formula - with some variations in eacb coUDa')' and dJat Social Fund projeclS do not run into delays that projects with policy conditionality experience.

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Table 6i Average Staff Weeks Expended for Preparation and SupeO'ision

BB preparation BB Supervision BBlotal I TF PreDaratlon Time

IE Supervision :rE..J:mI Dml DOlt DIM

'roJect Staff Amoun1 Staff Amount Staff Amount Staff Amount Staff Amount Staff Amount ::ategory Weeks US$ Weeks US$ Weeks US$ Weeks US$ , Weeks US$ Weeks US$

;adal Funds 90 258,304 24 66,081 115 324,384 35 95,910 11 23,693 46 119,602

;odaIFunds ,xdudlng 100 285,288 27 72,692 127 357,978. 43 118,324 13 29,694 57 147,918 \GETIPS

,GETIPS only 52 160,372 16 39,838 &1 190.008 3 8,262 a 86 3 8,336

)IF. and SDdat 75 199,380 46 101,071 120 300,451 9 22,055 5 13,907 14 35,962 undRelated 'rojecls

:ompaf3tor 121 313,571 28 65,147 146 378.718 48 87,576 5 17,645 51 105,220

'overty Targeted ro)ects

:omparator 117 301,123 26 61,397 143 368,520 48 103,214 9 28.672 55 131.886

ducalonand 1.-PnlIec:ts

:omparalOr 153 395,244 31 80,090 184 415.334 25 80,359 2 10,591 27 90,951

conomJc ,fraslruclln rojects

omparalDr 132 407,913 28 75,756 180 483.669 78 120,610 9 31.292 87 151,902

artlclpatory Qverty Projects

otn: I Excludes closed projects I BB ref .... to Bank .. Hmlnlslrallv. budget I TF ref .... to IrWt fundi , Th. aUJ*"lIfon ltaff we .. and COlt (In dolla,,) Ire hi ;Jverq.laur •• per y.ar.

9118198 SF _ TABJCLS 8:58

Iotal (BB + IE) Preparation Supervision

'BB+TE) (BB+IF)

Staff Amount Staff Amount Staff Arnoun Weeks US$ Weeks US$ Weeks US$

160 443,981 125 354,213 35 89,773

183 505,897 143 403,610 40 102,286

69 196,348 64 156,625 15 39,721

135 338,413 84 221.435 51 114.978

198 483,938 187 401,146 31 82.192

198 500,406 183 404.337 35 96,069

211 566,285 178 475,603 34 90,6821

248 635,570 210 528,523 37 107,047

project, and provide a central point of contact for the Bank. However, while Social Funds have a legal status that does not depend on the life of a particular project (albeit their continued existence may require donor funding), the PIUs are usually to disband after project completion.

• PIU s have had a checkered history; while they have proven to be a useful mechanism for direct project management, the reliance on PIUs has often entailed inadequate ownership of the project by the agencies that have ultimate responsibility for operation and maintenance of the investments or that are expected to replicate the project activities after the Bank's panicipation ended. In addition, the PIUs have often had very limited demonstration effects on these agencies and generally did not lead to improvement of their capacities.

• Social Funds avoid the shortcomings of traditional PIUs in as much as they work with a highly decentralized set of actors that propose and implement the subprojects; therefore, "buy-in" to the Social Fund activities by these participants should be less of a problem. Whether the existihg public sector agencies, such as sectoral ministries and local governments, accept responsibilities for subsequent O&M of the subprojects can still be an issue; and, the demonstration effect of Social Funds on the practices of public sector entities is also not always evident.

• Social Funds represent a further improvement over traditional PIUs by typically incorporating more private sector management experience, skills and methods - resources that are often considered a key' to their greater efficiency relative to existing public sector performance. However, since Social Funds do not compete for funding, their inherent incentives to restrain administrative costs and maintain high productivity are not necessarily any greater than in a traditional PIU and not equivalent to the incentives faced by a competitive private contract management enterprise. Social Fund projects have relied on internal performance indicators, audits, and detailed procedural manuals to maintain pressure on the Social Fund agencies for continued efficiency. Facing competition from alternative private or public entities that are capable of performing some or all of the same functions as Social Funds, can contribute to the continued efficiency of Social Fund agencies.

Project controls in AGETIPs·

• Overall, AGETIP projects are generally well-controlled. IDA Credit Agreements contain appropriate safeguards concerning project administration, staffing, and subproject selection and counterpart funding. There is clarity of legal status and governance of AGETIP agencies. Credit Agreements have appropriate safeguards against unilateral change of the status of agencies by governments. The terms and conditions between the agencies and the government regarding contract management and other functions delegated to the agency are set out in conventions for each project that is executed by the agency. The conventions between the AGETIP and the government regarding IDA projects must be agreed by IDA and cannot be amended without IDA's agreement.

• At a minimum, AGETIP projects adopt standard Bank requirements for annual financial audits and in many cases more frequent (six monthly or quarterly audits are required) especially in the early phase of projects. Agreement on TORs/shortlists is often a condition of negotiation and

-, This sub-section on project comrols is based on -Repon on an Audit of Portfolio Supervision of AGETIP Projectsw• 1nu:ma1 Auditing

Oepanment. Draft. February 1997 which reviews AGETURBenin; AGETUR. Togo; AGETIPB Mali; AGBTIP Senepl; FASO BAARA Burkina Faso; AGETIP Chad; GAMWORKS Tbe Gambia; AGEOPPB Guinea Buissau; AGETIPA Madagascar; AMEXTIPE Mauritania; NIGETJP Niger.

appointment of the auditors is often a condition of effectiveness. Compliance with timely submission of audited financial statements is good. ManagementlTechnical audits are a prominent element of the monitoring systems for AGETIP projects.

• Procedures for procurement of goods and works are sound, but more transparent exception handling and consultant selections would strengthen confidence in the AGETIP agencies. AGETIPs are exempt from public sector procurement procedures. This ensures that procurement contracting is rapid and suppliers are paid quickly. Some commentators have expressed concern that the exemptions makes AGETIPs vulnerable to misuse by vested imerests. However, AGETIP procedures for procurement of goods and works as set out in the Manual of Procedures establish strict controls and are consistent with the Bank's Guidelines.57 Although competitive procurement is promoted in AGETIPs, there will be occasions where exceptional procurement methods such as limited competition or direct contracting are needed. AGETIP agency activity reports have not always been explicit in highlighting any exceptional procurement methods. Because consultant selections are not subject to open competitive bidding, these can generate speculation about transparency - AGETIP agencies have not been fully transparent about consultant selections.

• The general approach in AGETIP projects is to break procurement down into small packages to maximize the amount of national competitive bidding (NCB) procedures for contracts in the projects. This approach is related to the objective of promoting local contractors using labor­intensive methods. This exception to the Bank's general policy of maximizing international competitive bidding (ICB) has been accepted by the Board on a case-by-case basis. However, it would be difficult to apply this approach on a significant basis across the Bank's portfolio without getting into conflict with the Bank's broader procurement policies.

• A number of AGETIP agencies depend on income from delegated contract management to finance their own administrative costs. This could generate a kind of "bottom line" discipline to the running of the agency, especially if the agency was subjected to competition in obtaining business.

• , Perfonnance indicators on AGETIP projects are typically a combination of process indicators (e.g., percentage's for completion on time and within budget, procurement cycle time, contractor payment cycle time), and output indicators (e.g., subprojects completed, number of firms registered/contracted, amount of employment generated on subprojects, amount of training delivered). These indicators generally measure project efficiencies. What is lacking, at least in the Staff Appraisal Reports, are indicators to measure how the projects will be evaluated for their development impact (e.g., the extent to which subproject facilities are functioning, used, and maintained) .

$7/ The conllOls include: all goods aDd works connell are adven:ised and open to either all pre-quaJificd firms or (where there is no pre­qualification process) ro all finns in me 1DIU"ket: simplified standard bidding documents are used ro faeilitau: im'Olvement of smal1«ale or community level contracrors, and dlcse set out the evaluation criteria clearly; public bid openings are held where the completeness of bid documents are assessed iii the open aDd die prices are announced; awards must be made to die lowest evaluaa:d bidder; exceptions must be documented by the selection commiaee; award results are published; I.Dd any award where there are less than five bidders are subject ro prior review by IDA (-Repon on an Audit of Portfolio Supervision of AGETIP Projec:1S-. Internal Auditing Depan:mcm. World Bank. 1997>.

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Recommendations

• As individual Social Funds become more permanent, it may be desirable for them to face competition from alternative private or public entities that would be capable of perfonning some or aU of the same functions. Social Funds should be exposed to competition if continued efficiency is to be ensured.

• Administrative cost of Social Funds should not be the main indicator of efficiency since other goals, for example, community panicipation, may be compromised. The narrow focus on administrative cost as an end in itself may be inappropriate. A set of principles for detennining suitable percentage limits on administrative costs should be established, until the agencies face effective competition.

• There are occasions where Social Funds adopt exceptional procurement methods (limited competition! direct contracting). Activity reports should have specific sections reporting on exceptions. The independent technical/management auditors should review these cases for reasonableness during their audits. Consultant selections should be made more transparent.

• Requirements for quarterly or even six monthly audits in AGETIPs should be kept under rev!ew by the Bank especially after an initial period of agency operations, e.g., after two years of agency operations. The frequency of the audits should be tailored to the specific performance of the operations. The administrative burden on agencies of frequent audits can be high.

• Where the activities of the Social Fund are growing quickly, the risk of over-stretching staff-skills and resultant potential loss of quality of oversight is a real possibility. Social Funds should not be encouraged to integrate vertically along the whole project cycle (designing, implementing, monitoring), or horizontally across all types of projects and all parts of the country. Social Funds should be selective in their activities, and should be prevented from becoming multipurpose agencies.

• Social Funds should lay more emphasis on monitoring outcomes on-the-ground. The budgetary . and staff-time iniplications of setting ... up the appropriate monitoring systems - both for the Bank

and Social Fund agencies - should not be underestimated. It is important that these cost and time considerations are factored into the project costing process.

VI. Conclusion: Role of Social Funds, Ensuring Sustainable Outcomes on-the-ground, and FoIlolv-up Actions

• Social Funds have been an effective instrument for emergency assistance. They have significant potential as tools for community development for the sustainable delivery of services to the poor. Innovative features of Social Fund projects include their emphasis on forging public-private­community partnerships based on comparative advantage and the flexibility they offer in tenns of subproject design and implementation by laying-down up front only eligibility criteria - not blue-prints - and by soliciting project proposals from multiple development actors including community groups themselves. Social Funds probably surpass other sector portfoliOS in a number of respects, for example, the cost and speed of service delivery, the success in reaching the poor, and the extent to which they respond to community initiatives. In fact, other Bank projects for the poor would benefit considerably from assimilating specific features of Social Fund projects. With the aim of improving the quality of an already evolving and dynamic Social Fund portfolio to the level of the best in each of the sectors that it covers, this concluding section of the review discusses the conditions under which Social Fund projects can be an appropriate response, the key design elements that can ensure sustainable outcomes-on-the ground, and the follow-up actions to the present review.

Role of Social Funds

• Social Funds have been supported under different country settings varying from emergency or post-crisis situations to those where relative macroeconomic and political stability prevail and where functioning institutions exist. The role and design of a Social Fund in different countries should reflect these differing country conditions. A clear vision of the role of a Social Fund vis­a-vis that of other public and private institutions can help to enhance the effectiveness and sustainability of service delivery.

• The role of Social Funds in poverty reduction should be viewed in its proper context. Social Funds cannot be a panacea for poverty as they have been conceived in some Latin American countries. 58 Economy-wide reforms aimed at increasing the efficiency and equity of public spending and improving the overall performance and poverty-orientation of central and local institutions are critical for sustained growth and poverty reduction. Social Funds should not take attention away from - or work counter to - these fundamental fiscal or institutional reforms in the country that address poverty systemically. $9

• The decision to support a Social Fund should be preceded by a careful examination of the alternative options at hand. For example, time slice fmancing may be more appropriate in countries where the dialogue on public expenditures and sectoral policy is strong. Matching grants may be more appropriate when the dialogue is confined to a few areas. Social Funds may

"/ See for example, Inter-America Development Bank "Repon on Social and Western Funds: Issues and Recommendations". December 1996. page 16: "In all countries. fUnd operations have been given a high profile and a central role in me campaign to reduce poverty". and page 10 " ... In some cases. me funds have become me govemment:'s show piece program for combaaing poveny .

• / This concern emerges from evideuce from some countries. for example. from dle EBYJ)t Social Fund I where "local govel'DIDCDt's budgetary allocations from centtal governments were already being cut back. based on dle assumption of inflows from the Social Fund" (Egypt Annual Meetings Brief. September 17, 1992); and from the Honduras Social Investment Fund which indicates tbal as a result of FHIS. municipalities receive a larger budget DOW. but not much larger because Ministry of Education and Ministry of Health allocations have declined (pAR Honduras PHIS, page 26).

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be an option when the opportunities to influence the overall public expenditure pattern are limited. They could be an interim measure to protect public spending of vital importance to the poor or direct more resources to activities that benefit the poor until such time as efficient and equitable planning and budgeting procedures can be installed in government institutions.

• A Social Fund may be considered a temporary or transitional option in one of two situations:

- Government Failure, Le., the existing central and local governmental budgetary, planning, and delivery structures are very weak, lethargic and unresponsive to local needs and demands; and they cannot be refonned anytime soon -. this is, for example, the emergency or post-conflict scenario; and/or

- Missing Government, i.e., certain geographic regions or population groups are outside the reach of existing central or local governmental delivery systems.

In cases where a government solution is the best response to either "government failure" or to "missing government", the Social Fund can only be a temporary response. Building central or local government capacity - through the Social Fund and/or through other complementary operations - would be the longer-teon solution. A temporary Social Fund would be justified where there are emergency or other social needs and the government is not equipped to m-eet these right away but may be expected to be able to meet these demands either after normalization or through enhanced capacity at a later stage. In such cases, the Social Fund could set the stage for subsequent sectoral investments by the government by enhancing government capacity either directly, by financing government-sponsored subprojects that meet Social Fund criteria, thus allowing the government to "learn by doing"; or indirectly, through "leading by example", providing a demonstration effect for the government to follow.

• Under what circumstances can Social Funds playa longer term, more permanent role? When a government solution is not the best response to "government failure" or "missing government", a Social Fund (or a variant of the Social Fund) could take on longer term functions, namely:

As a "prod:uction entity". The Social Fund can evolve into a "production entity" for a government, managing the bricks and" mortar aspects of physical works while the government focuses on investment programming and priority setting.

As a "special funding window". Social Funds can be a "special funding window" to channel small grants to remote areas and difticult-to-reach communities (e.g., providing seed money for very small-scale activities or for innovative pilot activities), thereby relieving the government of functions which are simply too "retail" for the government to get involved in; in such cases, the Social Fund could stan where the government leaves off.

As an "instrument for community capacity building". Social Funds could evolve into specialized agencies supporting community capacity-building by responding to community initiatives and priorities. The primary focus would be on supporting community mobilization and group formation activities using small grants as the entry point with the ultimate goal of enabling community groups and other local entities to access quality services speedily from mainstream institutions.

Whether Social Funds are created as transitional mechanisms or as longer ten;n institutions, their

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role and responsibilities have to be carefully appraised and monitored to ensure that the Funds do not over-step their mandate. The dangers of an expanding role and excessive size of Social Funds are very real, since this can result in a parallel public sector entity with its accompanying shortcomings.

• Social Funds can support decentralization efforts in a country. However, the rationale for Social Funds needs to be carefully considered, in terms of the institutional and financial reforms needed to develop strong local governments that are capable of delivering services to the poor in a manner that is responsive to their demands. A more appropriate approach may be, for example, any of a number of alternative municipal development funding channels which operate more as municipal lending institutions or provide block grants to municipalities for their investment in the context of appropriate inter-governmental finance arrangements.

• Social Funds should not be created when:

- Well-functioning institutions exist for delivering services to the poor; if they exist for some sectors, then the Social Fund should probably not intervene in those sectors; or

• Existing institutions are not functioning effectively but they can be reformed within a "reasonable" time period through other forms of support.

Ensuring Sustainable Outcomes On-the-Ground

• The establishment of a Social Fund project in a country should be preceded by an assessment of its suitability and feasibility; Social Funds are not an appropriate response in every country. As with other interVentions that the Bank supports, the case for a Social Fund should be argued -not simply announced - in the Country Assistance Strategy. The rationale and appropriateness of Social Fund projects should be considered explicitly in each countiy in relation to the requirements and alternative approaches for extending services to the poor, enhancing sectoral performance, and improving public investment. At the identification/preparation stage, it is necessary to establish clearly whether existing policies and institutions are conducive to sustainability and what the Social Fund would need to do to support sustainability conditions. In countries where sectoral policies are poor, a Social Fund if well-designed can provide good demonstration of sustainable subproject design; and where sectoral policy is good in terms of sustainability, the Social Fund can replicate good subprojects. The bigger the size of overall Social Fund investments relative to the size of each sector (even if individual subprojects are small), the more important it is that they conform to the sectoral development strategy and that evolving sectoral good practices are observed.

• If Social Funds are to fulfill their potential as participatory, demand-oriented instruments for sustainable service delivery to the poor, this needs to be reflected not only in their overall objectives, but more importantly in their design and implementation as well. Demand-orientation requires that projects offer clients a range of options (e.g., in the choice of goods and services, and technical and service .. level options) from which to choose; provide information to assist clients make informed choices; and require evidence of commitment and interest through cash or in·kind contributions andlor the initiation and completion of organizational tasks as a condition of subproject approval and release of funds. The institutional design of such projects needs to be fundamentally different from supply-driven projects.

49-

• Social Fund projects that aim to achieve sustainability of services should incorporate institutional mechanisms to ensure community involvement beyond subproject identification. Community involvement should be sustained in decision·making throughout the design, implementation, operation and maintenance, and evaluation of subprojects and reflected in community authority and control over expenditures. Mechanisms should also be in place to ensure that community decision-making adequately represents groups such as the poor.

• The design and implementation of the outreach, and local capacity·building components of Social Fund projects should receive greater attention. Investments should be made in building organizational capacities of conununities - not just in developing their technical skills. As the poorest among the poor are not always adept at articulating their needs in a systematic fashion, mobilization and training of these groups under Social Fund projects would improve the prospects of reaching them. Special efforts should be made to ensure that training plans related to capacity· building efforts are translated into actual training since this has been an issue even in the better Social Funds.

• Social Fund projects that have as their objective to provide improved coverage of services (the non-emergency group) should ensure that the key design elements that lead to sustainability (e.g., in the case of economic infrastructure, evidence of demand, the appropriateness of technical standards, and sound O&M arrangements) are integrated up front into Social Fund design and appraisal criteria. This would mean, for example, that entering into agreements with user groups or government agencies that the O&M costs will be met is not sufficient - it would require ensuring that the concerned groups or agencies are committed to the criteria for sustainability and possess the capacity - financial and institutional- to meet the agreed obligations. It would also require that Social Funds monitor as systematically as possible the extent to which investments supponed by them are being utilized and maintained, as well as how much revenue is actually collected for cost recovery purposes and how it is used. Sanctions or withdrawal of the services offered should also be considered where the beneficiary contribution is not met.

• During the design stage, an assessment should be made of the capacity of the intermediaries to be used by Social Funds, in terms of their experience, stage of development, and performance. With respect to microfinance components of Social Fund projects, the focus should be on building the capacity of first tier intermediaries to provide sustainable financial services rather than merely providing funds for onlending to the intermediaries for a limited period. Specialized agencies and consultants may be contracted to provide technical assistance where appropriate.

• Critical to achieving the above sustainability conditions is the need for explicit collaboration across sectoral and disciplinary Bank units in the design and supervision of Social Fund projects. Sector specialists should design and supervise components of the Social Fund project pertaining to their respective sectors and subject areas.

• Social Funds should lay more emphasis than in the past on monitoring outcomes on·the-ground. Given that the poor are often the main target groups of Social Fund projects, the systematic collection of data relating to the socio-economic profile of Social Fund beneficiaries is critical. The Bank should ensure that the actual collection of outcome data does not lag behind plans to do so. The budgetary and staff-time implications of doing so - both for the Social Fund and the Bank - should not be underestimated.

-50-

Follow-up Actions

• The twelve projects that are presently identified as being "at risk" should be closely and continuously monitored and further remedial actions taken as warranted. The fiscal 1997 ARPP (Portfolio Improvement Plan) should report on the twelve "at risk" Social Fund projects.

• This review has highlighted the differing standards across sectors for assessing likely sustainability of Social Fund benefits on-the-ground. Such a difference in standards has also been highlighted regarding the stand-alone projects in these sectors as well (Le., not just Social Fund components). Depending on the standards used in a particular sector, the sustainability of Social Fund benefits would be deemed to be assured - or less clear. Bank: management should review the standards for sustainability being used across the different sectors. If there are intrinsic differences between sectors, differing standards across sectors can be justified. If not, a consistent standard for assessing sustainability across sectors would be warranted - and will have to be developed and adopted. Depending on how the issue of standards is resolved, it would be useful to revisit the Social Fund portfolio to determine the likelihood of its achieving the intended outcomes on-the-ground. The criteria for asSigning Implementation Progress and Development Objective ratings may also need to be revised to reflect these sustainability standards.

• The recommendations made in this review can enable the Bank to realize the full potential of Social Fund projects - especially those incorporating long temi goals - with respect to sustainable benefits on-the-ground. The recommendations and the good practice examples identified here should be disseminated widely. Through appropriate training and sensitization, task teams and project staff should be encouraged to address these issues and make the necessary adjustments in ongoing and new Social Fund projects. The managers of the units designing or implementing Social Fund projects should also be exposed to these good practices so that they can play their due role in getting them incorporated in the projects under their management. The importance of adapting good practices to the country-context and the need to constantly update them in the light of new experiences cannot be over-emphasized. The network structure should be used to share experiences and disseminate good practices and innovative approaches relating to the design and implementation of Social Fund projects across country departments. The Social Fund Web page currently being set-up should also be used for this purpose.

• Operationally-oriented research and impact studies should be done in the field specifically aimed at comparing the features of Social Fund and non-Social Fund projects and their results in tenns of the targeting, demand-orientation, and sustainability of subproject benefits. This field work should be done with participation of Social Fund staff in the countries concerned to increase learning from, and commianent to, the results.

-51-

Task Managers and other Bank Staff Interviewed

1. Jacob Bregman, Sri Lanka Poverty Alleviation Project

2. Hans Binswanger and Tim Campbell, DRIPs, Mexico Municipal Development Fund

3. Constance Corbett, Bolivia and Ecuador Social Investment Funds

4. Alan Dock, Zambia Social Recovery Projects I and II

5. Laura Prigenti, Eritrea Community Rehabilitation Fund, and Community Development Fund

6. Kathryn Funk and Maria Nowak·Przygodzka, Albania Rural Poverty Alleviation, Rural Development Fund, and Urban Works and Microenterprise Pilot

7. Gita Gopal, Ethiopia Pilot Social Rehabilitation Fund, and Social Rehabilitation and Development Fund

8. Abdelghani Inal, Mali Public Works and Capacity Building

9. Frida Johansen, Indonesia Village Infrastructure

10. Qaiser Khan, Randa El-Rashidi, and Mario Antonio Zelaya, Egypt Social Funds I and II

11. Montserrat Meiro-Lorenzo, Angola Social Fund

12. Norben Mugwagwa and Jay Chaubey, Malawi Sacial·Pund

13. Eileen Murray, Madagascar Food Security and Nutrition, and Social Fund n

14. Leslie Pean, Senegal Public Works and Employment I and II

15. Willem Stroben, Honduras, Nicaragua, Guatemala Social Investtnent Funds

16. Max Pulgar-Vidal, AGETIPs

17. Juliana Weissman, Peru Social Fund (FONCODES)

.. 52-

Background Papers

Nicholas Burnett, Tania Barham, and Robert Mattson, "Social Investment Funds Ponfolio: Sustainability Assessment of the Health and Education Components" , HOD, World Bank, Draft for Comment, January 1997.

Soniya Carvalho, "Do Social Funds Reach the Poor?", PSP, World Bank, Draft, 1996.

John Fitzsimon and Caroline Harper, "lAD Audit of Portfolio Supervision, AGETIP Projects", lAD, , World Bank, Draft, November 1996.

Deepa Narayan and Katrinka Ebbe, "Design of Social Funds", World Bank Discussion Paper 375, World Bank,1997.

Khalid Siraj and BHdd Randhawa, "Portfolio Improvement Program: Review of Financial Intermediary Lending Portfolio", FSD, World Bank, Draft, October 1996.

Deep~i Tewari, "Social Funds: Review of the Economic Infrastructure Components for the Portfolio Improvemt:!nt Program", TWUDR, World Bank, Draft, 1996.

Selected References

Briscoe, John and Harvey A. Gam. "Financing water supply and sanitation under Agenda 21", Natural Resources Forum, Vol. 19, No.1, 1995.

Campbell, Tim. "Social Investment Funds: Decentralization, Local Government and the Poor". A Dissemination Note from the LATIE UrbanlWater Unit. Washington, D.C.: World Bank, March 1991.

Carvalho, Soniya. "Social Funds: Guidelines for Design and Implementation". lIRO Working Paper No. 34. Washington, D.C.: World Bank, July 1994.

Farvacque, Catherine, L.·Godin. "Projets De Developpement Urbain En Afrique Francophone", AF5IN. Washington D.C.: . World Bank, 1996.

Forster, Sarah. "Are Social Funds an Effective Mechanism to Deliver Credit for Microenterprise Development? The Role of Social Funds in Micro-finance: Experience and Lessons Learnt". (Draft). Human Resources Division, Country Department 1, East Asia and the Pacific Region. January 1996.

Gam, Mike. "An Institutional Framework for Community Water Supply and Sanitation Services", Note prepared for the Collaborative Council, TWUWS, July 1995.

Glaessner, Philip J., Kye Woo Lee, Anna Maria Sant'Anna and Jean-Jacques de St. Antoine. "Poverty Alleviation and Social Funds: The Latin American Experience". World Bank Discussion Paper No. 261. Washington, D.C.: World Bank, 1994.

Graham, Carol. "Safety Nets, Politics, and the Poor: Transition to Market Economies." Washington D.C.: Brookings Instirute, 1995.

-53-

Grosh, Margaret. "What Should Social Funds Finance? Portfolio Mix, Targeting and Efficiency Criteria." View from LATHR No.3. Latin America and Caribbean Technical Department, Human Resources Division. Washington, D.C.: World Bank, 1990.

Gopal, Gita. "Procurement and Disbursement Manual for Projects with Community Participation". World Bank Discussion Paper No. 312. Washington, D.C.: World Bank, 1995.

Gopal, Gita. and A. Marc. "Study of Procurement and Disbursement Issues in Projects with Community Participation." AFTHR Technical Note 17. Africa Technical Department, Human Resources Division. Washington, D.C.: World Bank, 1994.

Gopal, Gita and A. Marc. "World Bank-Financed Projects with Conununity Participation (Procurement and Disbursement Issues). World Bank Discussion Paper No. 265. Washington, D.C.: World Bank, 1994.

Heggie, Ian. "Management and Financing of Roads" , World Bank Technical Paper Number 275, Africa Technical Series. Washington, D.C.: World Bank, 1995.

Heiser, T. "Soci~onomic Development Funds: A Guideline for Design and Implementation". ADBIUNDPIWB Repon RAF/86/037/A/Ol/42. 1991.

Inter-American Development Bank. "Report on Social Investment Funds: Issues and Reconnnendations", Draft, December, 1996.

Jorgensen, S., M. Grosh and M. Schacter. "Bolivia's Answer to Poverty, Economic Crisis, and Adjustment", World Bank Regional and Sectoral Studies. Washington D.C.: World Bank, 1992.

Kessides, Christine. "World Bank Experience with the Provision of Infrastructure Services for the Urban Poor: Preliminary Identification and Review of Best Practices", TWU-OR8, Washington, D.C.: World Bank, 1997.

Khadiagala, Lynn. "A Qualitative Analysis of Social Funds: Strengths, Weaknesses and Conditions for Success". ESP Discussion Paper No. 52. Washington, D.C.: World Bank, 1994.

Levinson, James F. "Incorporating Nutrition into Bank-assisted Social Funds", HRO Working Paper No. 5. Washington, D.C.: World Bank, June 1993.

Malena, Carmen. "NGO Involvement in World Bank-Financed Social Funds: Lessons Learned". PSP Discussion Paper 100. Washington, D.C.: World Bank, 1996.

Marc, Alexandre, C. Graham, M. Schacter, M. Schmidt. "Social Action Programs and Social Funds". World Bank Discussion Paper 274. Washington, D.C.: World Bank, 1993.

Menno Pradhan, Laura Rawlings, and Geert Ridder, "Bolivian Social Investment Fund: Analysis of Baseline Data for Impact Evaluation", Vrije Universiteit Amsterdam and World Bank, March 1996.

Mesa-Lago, Carmelo. "Safety Nets and Social Funds to Alleviate Poverty: Performance, Problems and Policy Options". Issues Dote prepared for UNCT AD Standing Committee OD Poverty Alleviation. Geneva. October 29, 1993.

-54-

Narayan, Deepa. "Designing Community-Based Development", ENV Department Papers, Participation Series 007, Washington D.C.: World Bank, 1995 ..

Narayan, Deepa. "The Contribution of People's Participation: Evidence from 121 Rural Water Supply Projects", Environmentally Sustainable Development Occasional Paper series No.1. Washington D.C.: World Bank, 1995.

Newman, J., S. Jorgensen and M. Pradhan. "Workers' Benefits from Bolivia's Emergency Social Fund". LSMS Paper No. 77. Washington, D.C.: World Bank, 1991.

Sara, Jennifer, Alexandra Gross, and Caroline van den Berg. "Rural Water Supply and Sanitation in Bolivia: From Pilot Project to National Program", UNDP-World Bank Water and Sanitation Program, May 1996.

Schmidt, M. and A. Marc. "Participation in Social Funds". Environment Department Paper 004. Washington, D.C.: World Bank, 1995.

Siri, Gabriel. "The Social Investment Funds in Latin America: A Critical Appraisal (Bolivia, EI Salvador, Guatemala, Honduras, and Nicaragua). Study prepared for the Swedish International Development Authority (SIDA). April 30, 1992.

Stewart, Frances and W. van der Geest. "Adjustment and Social Funds: Political Panacea or Effective Poverty Reduction?" Employment Papers No.2. Geneva: International Labour Office, 1994.

Subbarao, K., Aniruddha Bonnerjee, Jeanine Braithwaite, Soniya Carvalho, Kene Ezemenari, Carol Graham, Alan Thompson. "Safety Net Programs and Poverty Reduction: Lessons from Cross­Country Experience", Directions in Development, Washington, D.C.: World Bank, 1997.

UNCTAD. "Recent Developments in Social Funds and Safety Nets". Background note by the UNCTAD Secretariat. UNCTADIPA/2. November 22, 1993.

Webb, Anna, Kye Woo Lee, Anna Maria Sant'Anna. "The Participation of Nongovernmental Organizations in· Poverty Alleviation". World Bank Discussion Paper 295 . Washington D. C.: World Bank, 1995.

Wiens, Tom and Maurizio Guadagni. "The Design of Rules for Demand-driven Rural Investment Funds: The Latin American Experience". World Bank Technical Paper. Washington, D.C.: World Bank, 1998.

World Bank. "Effective Implementation: Key to Development Impact", Portfolio Management Task Force, September 1992.

World Bank. Honduras FHIS PAR Report No. 13839-HO, 1994.

World Bank. PPAR Senegal Public Works and Employment Project, Draft, 1996.

World Bank. SAR Bolivia Social Investment Fund IT, Report 11927, 1993.

World Bank. "PIP Review of Water Supply and Sanitation Sector", TWUWS, 1996.

-55-

World Bank. peR Senegal Public Works and Employment Project, Report 15166, 1995.

World Bank. Water Resources Policy Paper, 1993.

World Bank. Midtenn Review, Bolivia Social Investment Fund I Project.

World Bank. Egypt Annual Meetings Brief, September 1992.

World Bank. Report on an Audit of Portfolio Supervision of AGETIP Projects, Internal Auditing Department, Draft, February 1997.

Zuckerman, Elaine. "Social Funds in Latin America: Where Do We Stand?", Washington, D.C.: Inter­American Development Bank, 1990.

..56-

Social Funds Approved tJpto End-FY96

Statui link Credltll.oln FYoIBoIrd •• or.1Id

Countly Prol.ct Name Approval FYII BOLIVIA Emergency SOCial Fund I 1987 Closed

BOUVIA Emelgenc;y SOCiII Fund II 1988 eso.ed GUINEA SOCIO-Economic ~ Support Pn:IteCt 1989 eso.ed SAO TOME MulllHdOr Pn:Ijed I 1989 Closed BOL.IVIA Sociallnwstment Fund I 1990 Cloud

SENEGAl. PubliC WOI'ks & Empioyment PIqICII 1990 Cloud BURKINA FA! PublIC Wort<I & E.rnpjoyment PnljIC:r 1881 Closed EGYPT SOCial Fund , 1991 ACUW

HAl" Economic & Socii' Food 1981 AcIIYI

HONDURAS SocialllWeltrnenl Fund I 1981 Cloud NIGER PuDIIC Worics & ~ PIqICI (wltl1IIIPJII.) 1991 AcIIYI

SAO TOME MulllHcUlr Project II 1991 Ac:tIYe SRI LANKA Poverty AIIeWIIXIn 1991 ActIve ZAMBIA Soaal Recovery Project 1991 Ac:tMI ETHIOPIA PIlOt SoctaI RehabiltalXln Ft.IId * 1892 ActIve

(Emergency RecxNwy & ~ ProjeCt) GUYANA SIMAPIHeaIth. Nulrltlon. wa. and SanIIa1Ion ProjId 1992 AdIIIe

HONQURAS Sociallnwstment Fund II 1992 CIaMd

MAU PublIC Wort<I & Capacity BuIcInQ (will".) 1992 ACIMI RWANDA SodaIFund' 1982 AcIIYI

(Food Security and NutI1Iion PnIjec:t) SENEGAL PubliC Wort<I & Employment PnljIC:r II 1882 AcIIYI

Al.BAN1A Rural PoYef'Iy AJIeVIaIXln PIklt 1993 Closed BOUVIA Soaallnvestment Fund II 1993 AcIIYI

BURUNDI Sodal ActiOn Project 1993 ACIMI ERITREA Community RehabllllllXln Fund· 1993 CIoIed

(EII'\iopia Rec:overy & ~ PI'II;ed for EtIIrIra)

GUATEMALA Sodallnveslrnenl Fund 1993 AcIIYI GUINEABISS SOCIal AdIon Fund • 1993 AcIIYI

(SOCial Sector Project) MADAGASCA FondS d'lnteMIIIllol'l pour Ie O .... opp.".,t (FOI) • 1993 ActIYe

MAURITANIA (Food Security & NutrItIOn) ConstnJClk)n Capacity & ~ 1993 AcIIYI

NICARAGUA SociaIlnwstmenl Fund (FISE I) 1993 ActIYe CHAD Public Worts & Capacity BuIcInQ 191M AcIIYI COMOROS Community DeIIeIopment Support Ft.IId • '* AdM

(POI)UIauon & Human R.earI:-.. PnIject) ECUADOR Third Social OevWopmenl ~ Social ~ Food 1* Ac:IMI

GAMBIA Public Wortts & Capacity BuIIIInII IDIW AdM MADAGASCA Antananarlw \JrtIan WonaI IDIW Ac:IMI PERU Sodal DevekJpmenI & ~ F1.I'Id (fONCODES) lDIW AdM

ALSANIA Rwal De¥e/opI'nent 1885 Ac:IMI CAMBODIA Social Fund 1995 AdM! ZAMBIA Social Recovery II 1995 AcIMI A1.SANIA I.Jttran W(JI1cIand MICrO ~ PIklt 10Ge AdIWI ALGERIA PIlot Project for CoI'rIrIuIIy ~. 10Ge Ache

(SOCial Safety Net Support PnliId) ANGOLA Social AdIon Fund lOGe AcIMt

(SOCIal AdIon Project) ARGEN11NA ParticiPalOfy SodaII~ Ft.IId (FOPAoR) • 10Ge AcIIYI

(SOCial ProtedIOn PI'ojeC:l) ARMENIA Soc;:iallnvestment Fund 1we ActIYe EGYPT Social Fund II lwe Ache ERllREA Eritrea Convnunlty ~ Ft.IId ,we N::IiWI ETHIOPIA SoCIal RlII'Iabdilation and ~ FI.RI (ESDF I) ll1i8e AdIWI

GUINEABISS Transport and L.lrt.n InfraIINc:an ~ twe AcIMt HONDURAS Soc:iIIlln~t Fund III lwe AcIMt MAQAGASCA Soc:iIII Fund II 1fi11i16 AcIMt MAJ..AWI SoctaI AcIIon Fund Iwe AcIMt NICARAGUA Soaallnvestment Fund (FISE nl Iwe AdM

. Number 01

I!m.I. Prajec:ts Closed 11

ActIve 40

ALL 51

Il10*: 1)· ....... tID II'Ie Social Fund compcnent ...... PnIiIICl_1ftd IIIajed 1UftCII.J'It .. 1n .......... bIIIaw tne CIIlI'IIPCW*It .... Z) - ..,.". 110 IBRD IInanc:ec:t projIIctL

Amount rUSSM)

10.0 27.0

D.O 5.0

20.0 20.0 20.0

140.0 11.3 20.0 30.0 8.0

57.5 20.0

5 (150) . 10.3

10.2

30.0 13

(ID.I) 39.0 2..

40.0 10 .•

1 (25)

20.0 .. 0 .•

(8.8) 10.8

(21.3) 12.0 25.0 17 .•

7 (13)

30.0 ..

11.0 18.3

100.0 -

e.o 20.0 30.0 4.0

3--(SO) 21.2 (2.)

28'" (152) 12.0

120.0 17.5

120.0 22.0

30.0

40.0

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Social Funds At Risk in ARPP FY96

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10 Number of Projects. Lending I

ARPP Ratings and" At Risk" Indicators for Projects in Portfolio on Jan 13, 1997 ATTACHMENT IV

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RWANDA IHEALTH & POPULATION !pOTENTIAL I SIS I I I 1./ ~,(~.~*'l'··~..,\~.-~-- .. ~'~~·~ .. ,f(>~i':~'ij·>, ~\,~,,~ .. -.~.,.:,:.,-.-.t '. _"'_' .'_ '~<:~~~<~!_§p¥f~+.<'" ~~. : ...... , '. _.'."<._;_~-~.·:.:·-:~i~--~ .... _ .. ~.~~ DWANDA~A coon'SEC.~OCIALA.C,.::,~~,>· .PQTIl'N_TIAL,X:L .. , lIS,A/HS:i;~!::: .;;A',,;;p' '." •...••

:~-;;~~~ E~~:;;:·~~;;;~C~~_~Jp~;::r;A~·-·'··~~'T'~·~r' ;Jm~+~~c .. 1---l---\~---l--1- -l---------~---Note: HIghlighted projects are SoclOl Fund proJect~. . . 1

...... <.1,'

./ I .;' I .;' I 1./ ;. ,"-'.\'.'.-( ;;;-..h'.i,'/ j

~ ~-'-'lt---'-'''-~-' 't--I""./-J-.. ..J---.;'

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",. "T'An VI t\ nl41::::Ina l:.fl1 DU

Social Funds

1 EGYPT Soc Fund t 2 tWTI Eco & Soc Fund 3 SAO TOME Multisecmr 4 SRI lANKA POY8fty AHeviallon 5 ZAMBIA Soc Recovery 6 ETHIOPIA Pilot Soc Retia Fund ., GUYANA SIMAP I RWANDA Food SecurIty & Nulrlt e BOlMA Soc Iny Fund II

10 BURUNDI Soc Action 11 GUATEMAlA Soc In1/' Fund 12 MADAGASCAR Soc IflY Fund 13 NICARAGUA Soc Iny Fund '4 COMOROS Comm Dey SuppM '6 ECUADOR Third Soc De1/' 16 MACAGASCAR Soc Fund II 17 PERU Soc Dey & Comp Fund 18 ALBANIA Rural Dey 10 CAMBODIA Soc Fund 20 ZAMBIA Soc Recovery II 21 ALGERIA Pilot PIj for Comm Dev 22 ANGOLA Soc Action Fund 23 ARGENTINA. Par1iclpalory SlF 24 ARMENIA Soc Irw Fund 26 EGYPT Soc Fund II 28 ERITREA Comm Dev Fund 21 ETHIOPIA ESRF I 28 HONDURAS Soc Iny Fund '" H MALAWI Soc ActIon Fund 30 NICARAGUA Soc Iny Fund (FISE 31 AlBANIA lfftan WoN & MIcro 32 GUINEA BISSAU Soc Action Fund

AGEllPI 1 NIGER PublIc WoN I Employ 2 MALI PublIc Works & Cap Build 3 SENEGAl PublIc: Works & EIJllIoy 4 MAURITANIA ConslrUCtion cap 8 CHAO PuIlIk: WoN & Cap Building e GAMBIA PublIc WOIb & capacity ., MADAGASCAR Urban Works • GUINEA BISSAU Trans & lJIban

SF_TAB.XLS

ATTACHMENT V

List of Social Funds and Comparator ProJeds (Active ProJeds at end-FY96)

Selected OIFs and SF· Comparator Poverty Targeted Comparator Edu and Healffi---Comparator Economic Comparator Participatory related Projects ProJects Projects Infrastructure Projects Projects

1 BENIN Urban Reha and Mgt 2 TOGO Urban Cey 3 INDONESIA Village Infra 4 MEXICO Munlclpalln1/' 5 HAITI EmptoyGener.llion 8 MAURITANIA Infra & Pilol Dec 7 MONGOliA Prot of Vul Gr e BRAZIL NRDP Alagoas 'BRAZIL NROP Minas Gerais

10 BRAZIL NRDP Maranhao '1 BRAZIL NRDP Parabla 12 BRAZil NRDP Poverty Bahia 13 BRAZIL Rural Poverty Ceara 14 BRAZil Rural Pov8f1y Serglpe

1 BOLIVIA Agr Tedm Oev

2 MADAGASCAR Nat Health Sec lmpro

3 MALAWI PH'" 4 MALI Heallh Pop& Rural Waler II 5 SENEGAL Human Resources I 6 BOlIVIA AlJr Export 7 ECUADOR Rural 08'1 8 ECUADOR Soc Dey I Edu & Trg 9 EGYPT Sdllstomlasls Control

10 MALI Natural Resoun:e Mgt 11 MAURITANIA Pop and Health 12 MAURITANIA Water Supply 13 NIGER Agr Services 14 NIGER Populallon 15 SAO TOME Health and Edu 16 SAO TOME AD Privet & Smallloidor Dev 17 ARMENIA InsUtutlon Build 18 BOLIVIA Integrated Child Dev 19 CHAD Bask: Edu 20 ECUADOR Second Soc Oev 21 EGYPT Bask: Edu Impmv 22 EGYPT Matruh Resouree Mgt 23 GAMBIA Aor S8f'Yices 24 HONDURAS Nutrition and Health 25 MADAGASCAR Rural Fin TA 2e MALAWI Rural An ServIces 27 MALAWI Agr services 28 SENEGAL Human Resoun:es Dev II 29 SRI LANKA Comm Waler Supply & San 30 ZAMBIA Edu Reha I 31 ALBANIA Labor Marteet Dey 32 ALBANIA Soc Safety Net Credtt 33 ARGENTINA MCH and NutrlIion 34 ARMENIA Ear1hquake reconstruction 35 CHAD Health and Safe Motherhood 36 COMOROS Small Enterprise 37 ECUADOR Irrigation TA 38 NICARAGUA Health Sec Refolm 39 NIGER Edu UlJBaslc Edu 40 PERU Bask: Health and Nutrition 4 t ALBANIA Health Services Rehabilitation 42 ALBANIA Rural Roads 43 ALBANIA Irrigation Reba 44 BOLIVIA Edu Refonn 45 CHAD Pop and AIDa 48 CHAD Agr SeMces 47 EGYPT IrrlgaUon Improy 48 HONDURAS Basic Edu 48 MADAGASCAR Irrlgallon II &I MADAGASCAR Agr Expoftl 11 MAURITANIA General Edu 62 NICARAGUA Basic Edu 63 NIGER Pilot Prtvat. IrrlgaUon Promotion 54 PERU Primary Ecru Quality 55 SENEGAL Water Sec Project 68 SENEGAL Comm Nulrilion and San 57 ZAMBIA Agr Sector I 58 ALBANIA Agro Processing 58 ARGENTINA Foreslly Dey eo ARGENTINA Provincial Health Sec Dey 81 BOliVIA Rural Communitle. 62 BOliVIA Rural Waler and sanitation 63 EGYPT Population 64 MAlAWI PrImary Ecru EM 85 MALI Vocational Edu 66 NIGER Natural Resource Mgt 81 PERU Rural Roads Retia and Malnlenan 66 SENEGAL Pilol Female Literacy 89 SRI LANKA Teacher Ed and Deployment

1 MADAGASCAR Nal Health Sec Impr 2 MALAWI PHN 3 SENEGAL Human Resources I "' ECUADOR Soc Dey IlEdn and trg 6 EGYPT Schistosomiasis 6 MAURITANIA Pop & Heallh 7 NIGER Populallon e BOLIVIA Inlegraled Child Dey 9 CHAD Basic Edu

10 ECUADOR Second Soc Oev 11 EGYPT Basic Edu 12 HONDURAS NulriHon and Heallh 13 SENEGAL Human Resources De1/' It 14 ZAMBIA Edu Raha I 16 ARGENTINA MCH and Nulrillon I .. CHAD Health and Sale Motherhood 11 NICARAGUA Hea!th Sector 18 NIGER Edu IIIlSask: Edu 19 PERU Basic Health and nutrillon 20 ALBANIA Health Services Rehab 21 BOUVIA Edu Relonn 22 CHAO Population and AIDs 23 HONDURAS Basic Edu 24 MAURITAN!A General Edu 25 NICARAGUA Edu 26 PERU Primary Edu 21 ARGENTINA Provincial Health Seclor 26 EGYPT Populallon 29 MALAWI Prlmary Edu EM 30 SENEGAL Pilol Female Literacy :4 1 SRI LANKA Teacher Ed and

1 ECUADOR Rural Dey 1 2 MALI Nalural Resource Mgt 2 . 3 MAURITANIA Waler Supply 3 .. NIGER Agr Services .. 5 SAO TOME Ag Prtvallza!ion & 5 6 EGYPT Matrutl Resource Mgt .. 1 GAMBIA Agr Services 1 8 MALAWI Agr services 8 9 SRI LANKA Convn Water SupplylS 9

10 ARMENIA Earthquake Reconstruction 10 11 ECUADOR Irrigation TA 11 12 ALBANIA Rural Roads 12 13 ALBANIA lnigatlon Rehab. 13 14 CHAD Aor Services '4 16 EGYPT lnigallon Improv 15 16 MADAGASCAR IrrlQaUon II 16 17 MADAGASCAR Agr EKlenslon 11 18 NIGER Pilot PrIvate InigaUon 18 19 SENEGAL Waler Seclor 19 20 ZAMBIA AgrSedor I 20 2t ALBANIA Agro Processing 21 22 ARGENTINA ForeslJy Dev 22 23 NIGER Nalural Resource 23 24 PERU Rural Roads Rehab & Malnten 24

25 26 21 28

ECUADOR Rural Dey MALI Natural Res MgI EGYPT Matruh Resource Mgt GAMBIA Ag Services SRI LANKA Comm Water SuppiS ARGENTINA MCH & Nutrition ARMENIA Eat1hquake recooslruclion CHAO Health and Safe Motherhood NIGER Edu IIlJBaslc Edu PERU Basic HealthlNulrition ALBANIA Irrlgallon reha 90lMA Edu refonn CHAO Agr Services EGYPT Irrigation Imp'OY HONDURAS Bask: Edu MADAGASCAR lnigallon II MADAGASCAR Agr Ektenslon MAURIl ANIA General Edu Profed NICARAGUA Edu PERU Primary Edu SENEGAL Comm Nutrillon ZAMBIA Agr Sector I ARGENTINA ForeslJy BOLIVIA Rural Comm Dev BOLIVIA Rural Waler and Sanllallon EGYPT Population MALAWI PrImary Edu NIGER Nalur Res Mgt

29 PERU Rural Roads Reha 30 SENEGAL Pilot Female III

ATTACHMENT VI

Projects rated Highly Unsatisfactory (HU) or Unsatisfactory (U) on Implementation Progress(IP) and/or Development Objective (DO) in last form 590 as of Jan 1997

Country Name

Chad

Angola

Burundi

Project Name

Public Works and Capacity Building

Social Action

Social Action

Vnsan sfactor

y Rating

"At Risk" Flags

IP & DO - Effectiveness Delays

- Non compliance with legal covenants

- Management Performance Problems

- Financial Problems

- Environment Resettlement

- Risky Country - Poor Economic

Management

DO - Risky Country - Poor Economic

Management

IP & DO- - Management Performance Problems

Main reason given in last form 590 for Problem Status

1. Since the last supervision mission, there has not been significant improvement in the management of AGETIP. The audit repon of August 1996, whose quality improved financially since the previous one, reponed the absence of a fmancial and accounting system. The weaknesses of the technical audit reports have not been remedied. 2. The fiscal and legal status of the agency is still not clarified. This uncertainty is hindering the agency's activities. 3. A review of contracts for civil works and related engineering could not be carried out because of the difficulties for the agency to retrieve contracts and other documents which are associated to subprojects randomly selected in the first bank of subprojects. The absence of any coherent filing system allowing a posteriori control is assessed with a separate report. Thus, in the absence of appropriate management tools. the mission could not evaluate the agency's compliance with procurement requirements (studies and works). 4. The second "bank" of subprojects has been constituted, and is now acceptable to the bank. However, the mission recommends that it be launched only after measures have been taken to ensure its execution to satisfy objectives of the project according to economic conditions accept8..ble to IDA.

All the projects in the portfolio have been rated unsatisfactory with the respect to the development objectives, in order to reflect the country's macro-economic environment In the present macro-economic environment, even this project, which is designed specifically for transition from war to peace may not attain its objectives in assisting in poverty alleviation. At this moment, Angola is facing an economic crisis which is affecting all projects. Progress toward an economic refonn program with IMF and Bank was suspended on November 1995.

The project's achievement of development objectives is still rated unsatisfactory evc:n though project activity has improved since the

Bank Actions

IJ_

The second ttanche of sub projects of public works have not been given a no objection because of lack of transparency and accountability of the executing agency (AGETIPS). This can be considered as "infonnal" suspension of the project

The current macro economic and political situation in Angola is the main impediment to the country's development Consequently, the country team is engaged in policy dialogue with the government and the IMF to improve this situation. No project specific measures· arc being taken; the Social Fund component of the project is over disbursing" and its activities are proceeding according to schedule despite a not-very .. conducive environment Disbursements in the country have been suspended and it is not

Country Name

Guinea Bissau

Project Name

Unsati sfactor

y Rating

Transport and IP & DO Urban Infrastructure

Source: Last Form 590 as of January 1997.

"At Risk" Flags

-Slow Disbursements

-Extended Consecutive Problems

- Risky Country - Poor Economic

Management

- Non compliance with legal covenants

- Risky CountJy - Poor Economic

Management

Main reason given in last form 590 for Problem Status

last supervision mission in September 1995. Thirty five agreements were signed with NODs for the rehabilitation of schools, water supply schemes, and health centers. Civil works are underway in 3S sites (to the extent possible due to internal tunnoH). This increased activity is positive when compared to only 4 sUb-projects being completed since the project became effective one and a half year ago. On the negative side, all works and consulting services are being unden:alcen by force account (the project team is directly contracting with NGOs who are acting as contractors/entrepreneurs). One of the development objectives of a social fund project is to develop the capacity of local small . and micro-enterprises and consulting firms by giving them opportunities to be awarded contracts. At this time. this objective is not being achieved. Although some force account and direct contracting arc allowed, there should have been some competitive bidding or short list selections. Even though the credit became effective in October 1994, field activities never really took off until October 1995 when a new project director was hired. Over 200 new requests have been received from communes andlor other community groups for sub-projects. A concern though is that the project staff does not have the capacity to process all subproject requests in a timely fashion and make implementation arrangements with the project's potential development partners (small and mian­enterprises, local consulting fums, NGOs, etc).

The government has not paid its COlmterpan

fund to the project account and has neither implemented nor carried out the studies that were agreed upon in the credit agreement

Bank Actions

known how long this situation will last due to the volatile country situation. However. some actions are or will be taken: - the country director is

visiting Burundi 'to maintain a dialogue with the country since this project is the one that could be adapted to the new country situation

- when disbursements resume, the bank has suggested that international T A is provided to strengthen project team

- the manual of procedures will be revisited to see how the project can respond to the crisis in the country

Counterpart funding Rqu~ents have ~dy been met as per Development Credit Agreement requirements (the non<ompiiance with legal covenants flag was related to the countcrpan funding issue).

. Potential Problem Projects as of Last Form 590 in January 1997 (Satisfactory Implementation Progress (IP) and Development Objective (DO) in last form 590

but three or more of 12 "At Risk" Flags)

ATTACHMENT VII

-."----------------------------------------------------------------------------------------------------------------Country Name

Sri Lanka

Haiti·

Comoros *

Madagascar

Rwanda *

Senegal

Guatemala

Guinea Bissau *

Note: .

Project Name

Poverty Alleviation Project

Economic and Social Fund

Population and Human Resources Project

Social Fund II

Food Security and Nutrition Project

Public Works and Employment 11

Social Investment Fund

Social Sector Project

"At Risk" Flags

- Management Perfonnance Problems - Slow Disbursement - Eumded Consecutive Problem - Risky Country

- Drunfmlmt Funds - Slow Disbursements - ExtImded Coos.. Problems - Risky Country - Poor Economic Mauagcment

- Drunterpart Funds - Risky Country - Poor Economic Management

- Eft"ectiveness Delays - Risky Country - Poor Economic Management

- E.umded Consecutive Problems - Risky Country - Poor Economic Management

- Slow Disbunemcucs - Risky Country - Poor Economic Management

- Slow Disbursements - Risky Country - Poor £couomic Management

- Slow Disbursements - Risky Country - Poor EcoDOmiC Management

Bank Actions

Based on the Collowing crilCria the project's actual problem status was lifted in December 1997 and it was panted a ODe year extension. Impact among the beneficiary target group is positive; NOO capacity bas been enhanced by the project; proj~1 objectives continue to be achievable; credit covenants have been complied with.. During the extension period, the project would (and has already embarked upon): - assisting about 300 NODs-Partner Ortmiz;atiOD.S - pn::vcnt a funding gap Cor essential services by NOOs-Partner Organizations to tt:'e

poor between the end of the cummt projeet and the beginning of the planned second poverty alleviation project .

- enable the 'OYL to explore ways of strengthening cooperation and mutual support between its Samurdhi program and m::cessfuI NO Os-Partner Organizations

Management PerfoaDaOSI!' The NDTF IllilDagemcmt performance problems bave been addressed by n:cruiting Cour new and cq:ICricnced managing professionals from the NOO and Private sector in Sri Lanka. They fonn the management team with the Managing Director. A Stu1egy and 1997 workpJan bave been submitted to IDA and are under review. The project will be closed by 12131197. Slow Disbursement; DisbUlSClDCDt has picked up significantly over the past two years.. However, due: to the Govcmmcnt's inquiry into NOO practices then:: wen:: new delays. The uwcstiptions have DOW been closed (DO wrong doing was discoven:d) and disbursement is n::turning to a normal pace. However. after the recent cancellation. about USS 1 0 million will probably still be left undisbursed at the end of the project's extended liCe. Separately. concerns have been expressed thaI pressures for Caster disbursements IIJ'e jeopardizing the community participation. capacity building. and demand orientation objectives of the project.

Then:: is DO counterpart funding problem or slow disbutscment pro~!em anymore.

The counterpart funding problem docs DOt apply to the Social Fund component of the project

Effectiveness delays had been caused by political battles - these wen:: resolved eight months back.

The project bas been rated highly satis&ctory on both IP &. DO in the last form 590. No project n=lated issues neecl to be addressed. The possibility of rall'UCtUring the project so that it Will fit into a broader BIDk effort to help absorb 1.2 million n=fugees that bave n::tumed from Zaire and TIDZ'IIIia is being explored • the possible atructuring will n=flect changed coDditions on the ground rather than any project deficiencies.

Tbe slow disbursement problem occumd because the government bad DOt provided countellJUt ftmds Cor one IUd a balf yellS after project effectiveness. The problem bas been solved Jinc:e ad disbursements are CIIl1l'lCk.

The Social PUDd is curre.ntiy I'IICIlgineeria IUd restructuring its operational procedures. Sipificant raults have already heeD achieved in identifying bottleoecks and appropriate c:om:ctive ICtioas IIJ'e being taken. The Social Fund's new management and the commitmeDt of the directors is II:) be c::reditcd for the prornisinJ iDitiatives. However. much nmains to be done IUd conc:n:tc awts cannot be cxpec;tcd until It least six months have elapsed. The slow clisbursemencs problem is being addressed by the Social Fund Ihrou&b the recent contraet:ing of NO Os to manage (identify. eval .... supervise) specific Fund-fiDIDced activitir:s..

The sJow clisbursemcnt problem docs DOt apply to the social fund component of the project

• The Task Managers for Comoros and Guinea Bissau projects have indicated that while their projects have thn:e "at risk' flags in the QAOIOPR database, the third flag (counterpart funding and slow disbursement problems respectively) applies only to the non·Social Fund components of the project so the Social Fund component would only have two flags and should not be classified as "at risk". Similarly. in the case of Rwanda project it has been pointed out that the third flag (extended cosecutive problems) was valid during the war and before the restructuring of the project; only two flags would be applicable now.

Source: Last Form 590 as of January 1997.