Relevant WBG Management should provide guidance and quality control so that every project documents for WBG projects targeting SMEs will:
a) Define the group of firms to benefit by measurable criteria such as number of employees and annual revenues;
b) Justify the definition of the beneficiary group targeted (which could be a subset of SMEs) based on country-specific evidence that this group suffers from size-specific market failures or constraints.
c) Specify and wherever appropriate embed in legal provisions the mechanism to reach the targeted group;
d) Include in its results framework and M&E framework indicators of the impact of the project on the targeted group and on the constraints or market failures justifying the project.
e) Projects that describe themselves as targeting benefits to SMEs should reflect this approach. In addition, these projects should be coded accurately with regard to whether or not their benefits are in fact predominantly or exclusively available to SMEs. Coding systems and practices should be reviewed and modified to assure that targeted SME projects are correctly coded, to reduce "false positives" and "false negatives".
Selectivity is required for both efficacy of targeting and its efficiency. The definition of SMEs (both the "ceiling" and the "floor") establishes projects' relevance to development objectives and differentiates some firms from others based on criteria of employment, sales and assets. IFC and MIGA's global definitions appear ill-tuned to many local contexts, while the Bank's lack of any institutional definition can lead to project-specific definitions not firmly linked to the underlying rationale for the assistance offered. In addition, currently, only a minority of projects defines SME (who is eligible for benefits) and fewer still apply that definition through their provisions. A minority identifies the market or policy failure they are seeking to address and a smaller minority provides a solid rationale for how the project will ameliorate that failure. Limited relevant information on portfolio performance makes it difficult to learn from experience or even to establish the existence of additionality of WBG interventions.
IEG's review of project coding suggests a high degree of imprecision in coding projects, including a higher percentage of "false positives" in IFC and "false negatives" in the World Bank.
WBG: Agree. Management agrees with the overall thrust of IEGs recommendations. Most of the detailed recommendations repeat previous recommendations. Thus Management comments provided on the related recommendations are also relevant in this case.
The newly established Global Practices will be accountable for enhancing guidance and quality control for SMEs work.
Coding for SME support will be reviewed as necessary. The forthcoming Guidance Note for Financial Intermediary Financing will also be useful in improving the design and consistency of TSME activities where they involve such financing arrangements.
IFC will continue to strengthen the quality of board and legal documents and will provide guidance to staff on (i) confirming in board papers where the standard definition of SME is being used or an alternative is being used (ii) strengthening the justification for targeting SMEs in Board papers and (iii) including, where appropriate, definitions and provisions in legal documents pertaining to the application of funds for SME on-lending. Regarding the justification for targeting SMEs, it should be noted that IFCs ability to provide evidence on market failures and financing gaps is dependent on the quality of data and analysis undertaken elsewhere, something which will only improve over time.
IFC will continue to improve its mechanism for flagging MSME projects to improve data quality and relevance, recognizing however that the MSME flag for IFC differs from the IEG definition in purpose and composition.
MIGA will strengthen the quality of Board and legal documents and will provide guidance to staff on: the standard definition of SME is being used or an alternative is being used; strengthening the justification for targeting SMEs in Board papers; and, where appropriate, including definitions and provisions in legal documents pertaining to the application of funds to for SME on-lending.
Action 4C [IFC FIG]: Board Papers of investment SME flagged projects to include a SME definition. Provide guidance to staff on including SME definition and describing SME constraints in Board Papers
Indicator: Percent of new investment SME flagged projects that include a SME definition and constraints in compliance with the new guidance in Board Papers
Baseline: 18% of Board Papers of SME investment projects, in the sample revised by IEG, include a SME definition
Target: 75% of new investment SME flagged projects comply with the new guidance
Action 4D [IFC FIG]: Legal Documents of SME flagged investment projects to include a SME definition. Provide guidance to staff on including SME definition in Legal Documents
Indicator: Percent of new IFC (FIG) SME flagged investment projects include a SME Definition in compliance with the new guidance in Legal Documents
Baseline: 43% of Legal Documents of SME investment projects, in the sample revised by IEG, include a SME definition
Target: 75% of new SME flagged investment projects comply with the new guidance
Action 4E [IFC FIG]: Strengthen the methodology for flagging SME investment projects. Provide guidance to staff that work on SME investment projects on how to use the M/SME flag
Indicator: Percent of FiG's SME flagged investment projects following revised methodology
Target: From FY15, 90% of new FiG's investment projects apply revised SME flag methodology
Based on description received, IFC has made progress, achieving its goal for the first part of 0343-01 for FY (15) on defining SME in SME flagged projects (since the time period covered is through FY19, IFC will need to maintain the 75% or higher rate of SME definition through that FY.
Based on the description received, the second part of 0343-01 awaits action -- FIG will provide guidance in the current fiscal year that should address identification of SME constraints -- i.e. this had not occurred by end FY15.
Based on the description received, regarding action 0343-02 a baseline has been established and there is progress of seven percentage points from the baseline towards the goal of an increase of 32 percentage points of progress -- i.e. 22% of target is achieved.
Based on the description received on 0343-02, no measurable progress was achieved in FY15 but progress is expected in FY16.
IEG awaits evidence supporting these descriptions -- List for FY15 of which Board Papers of FIGs SME investments include SME definition (specific page references would help). List of which Board Papers identify SME constraints. Identification of which legal templates/documents of the GSMEF and for SME flagged investments include standard language on definition of SME (and description of what is the standard language).
0343-01 Indicator is at 50% of the target. This action has two items to be completed for FIG's SME Investments 1) Board Papers to include a SME definition. FIG's strategy unit reviews all board papers to confirm teams include SME definitions. In FY15 more than 75% of Board Papers of FIG's SME Investments include a SME definition. 2) Board Papers to include SME constraints. In FY16 FIG will provide guidance on how to include the SME constraints and review Board Papers to confirm implementation.
0343-02 Indicator is at 50% of the target. Legal templates for loans and risk sharing facilities of the Global SME Finance Facility (GSMEF) include standard language on SME definitions (under the term "Eligible sub-borrower"). Pending are legal templates for SME flagged investments that are not part of the GSMEF.
0343-03 Indicator is at 30% of the target. The action has been initiated. Guidance is now being issued for all new projects and quality control will be implemented in FY16