kenya microfinance for water services project...infrastructure. infrastructure in suburban areas...
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Kenya Microfinance for Water Services Project Project Completion Report TF057614 TF057615 TF057616 TF093392 June 2015
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© 2016 The Global Partnership on Output-Based Aid The World Bank 1818 H Street NW Washington DC 20433 Website: www.gpoba.org E-mail: [email protected] All rights reserved.This report was produced the Global Partnership on Output-Based Aid (GPOBA). The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of GPOBA or the Board of Executive Directors of the World Bank or the governments they represent. Neither GPOBA nor the World Bank guarantees the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of GPOBA or the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Note: All currency amounts are in U.S. dollars unless otherwise noted.
CURRENCY EQUIVALENTS
(Exchange Rate Effective: February 28, 2013)
Currency Unit = Kenyan Shilling K Sh 1.00 = US$0.01 US$1.00 = K Sh85.95
US$1.00 = €0.76 US$1.31= €1.00
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ACRONYMS AND ABBREVIATIONS
CAS Country Assistance Strategy
ERR external rate of return
EU European Community
€ European currency
FGD focus group discussions
GPOBA Global Partnership Output-Based Aid Trust Fund Program
CR Completion Report
IFC International Finance Corporation, part of the World Bank
Group
IRR internal rate of return
ISR Implementation Supervision Report
K Sh Kenyan shilling
MDG Millennium Development Goal
MIGA Multilateral Investment Guarantee Agency, part of the World
Bank Group
MWI Ministry of Water and Irrigation
NEMA National Environmental Management Authority
NPV net present value
NWCPC National Water Conservation and Pipeline Corporation
O&M operations and maintenance
OBA Output-Based Aid
OVR Output Verification Report
PAC Project audit consultant
PAD Project Appraisal Document
PIC Project Implementation Consultant
PPIAF Public-Private Infrastructure Advisory Facility, a World
Bank-administered trust fund
SNTA PPIAF Sub-National Technical Assistance Program
SPA service provision agreement
US$ US dollar
USAID United States Agency for International Development
WSP
Water and Sanitation Program (Note: This report does not
use WSP to mean Water Service Provider, a common
acronym in Kenya)
WSP-AF Water and Sanitation Regional Program in Africa
WASREB Water Services Regulatory Board
WRMA Water Resources Management Authority
WSTF Water Services Trust Fund
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Kenya Microfinance for Water Services Project
CONTENTS
Data Sheets
A. Basic Information
B. Key Dates
C. Sector and Theme Codes
D. Bank Staff
E. Results Framework Analysis
F. Ratings of Project Performance in ISRs
G. Restructuring
H. Disbursement Graph
Table of Contents 1. Project Context, Development Objectives, and Design .................................................................. 1
1.1 Context at Appraisal .......................................................................................................................... 1 1.2 Original Project Development Objectives (PDO) and Key Indicators ................................................ 3 1.3 Revised PDO and Key Indicators, and Reasons/Justification ............................................................. 4 1.4 Main Beneficiaries ............................................................................................................................. 5 1.5 Original Components ......................................................................................................................... 5 1.6 Revised Components ......................................................................................................................... 6 1.7 Other Significant Changes .................................................................................................................. 6
2. Key Factors Affecting Implementation and Outcomes ................................................................... 7 2.1 Project Preparation, Design, and Quality at Entry ............................................................................. 7 2.2 Implementation ................................................................................................................................. 9 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization .................................. 11 2.4 Safeguards and Fiduciary Compliance ............................................................................................. 13 2.5 Post-completion Operation/Next Phase .......................................................................................... 13
3. Assessment of Outcomes .............................................................................................................14 3.1 Relevance of Objectives, Design, and Implementation ................................................................... 14 3.2. Achievement of Project Development Objectives .......................................................................... 14 3.3 Overarching Themes, Other Outcomes and Impacts ...................................................................... 16 3.4 Summary of Findings of Beneficiary Survey .................................................................................... 16
4. Assessment of Risk to Development Outcome .............................................................................16 5. Assessment of Bank and Borrower Performance ..........................................................................17
5.1 Bank Performance ........................................................................................................................... 17 5.2 Borrower Performance .................................................................................................................... 17
6. Lessons Learned ..........................................................................................................................17 7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors .....................................20 Appendix A. Project Costs and Financing .........................................................................................21 Appendix B. Outputs by Component ................................................................................................22 Appendix C. Economic and Financial Analysis ...................................................................................28 Appendix D. Grant Preparation and Implementation Support/Supervision Processes . Error! Bookmark not defined.
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Appendix E. Beneficiary Survey Results............................................................................................37 Appendix F. Beneficiary Survey Results ...........................................................................................37 Appendix G. Summary of Grantee's CR and/or Comments on Draft CR ............................................37 Appendix H. Comments of Cofinanciers and Other Partners/Stakeholders ........................................37 Appendix I. List of Supporting Documents .......................................................................................37 Appendix J. Additional Notes on the Selection and Measurement of PDO and Intermediate Outcome Indicators .......................................................................................................................................40 Appendix K. Summary of Project Agreements and Amendments ......................................................44 Appendix L. Breakdown of Original and Revised Financing Figures Presented in Data Sheet A: Basic Information ....................................................................................................................................45
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Data Sheets
This is a small-grants project for which an operations portal roadmap is not available and
processing is done offline. The Data Sheets have been constructed from various source documents
and SAP-based activity management systems.
A. Basic Information
Country: Kenya Project Name: Kenya Microfinance for
Water Services
Project ID: P104075 L/C/TF Numbers:
TF057614
TF057615
TF057616
TF093392
Date: January 28, 2014 Type:
Completion report prepared
following Core guidelines,
by agreement with TF task
manager
Lending Instrument: Grant Borrower: K-Rep Bank, Ltd.
Original Total
Amount*: US$1,151,300 Disbursed Amount: US$2,597,119
Revised Amount*:
US$1,151,300
€1,400,539
Total equivalent:
US$2,988,528
Environmental Category: B – Partial assessment
Implementing Agency: K-Rep Bank, Ltd.
Co-Financiers and other External Partners:* K-Rep Bank, Ltd.
International Development Association (IDA)
* See Appendix L for additional details.
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B. Key Dates
Process Date Process Original Date Revised/Actual
Date
Concept
Review:* none Effectiveness: March 5, 2007
Appraisal:** April 4, 2006 Restructuring: June 29, 2011
Approval: *** December 6,
2006
Mid-Term
Review: none
Closing: December 31, 2008
June 30, 2010
June 30, 2011
February 28, 2013
* Scoping study done 2002, published as Mehta and Virjee (2003). Pre-feasibility work conducted
2004-2006. See World Bank 2009 (Appendix A) for a complete timeline.
** Eligibility Note and Proposal for Micro-Financing Project submitted to GPOBA (GPOBA
2006). Panel of Experts review of application completed April 11, 2006.
*** Grant agreement signed.
C. Sector and Theme Codes
C.1 Sector Codes (as percentage of total Bank financing)
Sector Original Percentage Revised/Actual
Percentage
Water supply 100% 100%
C.2 Theme Codes (as percentage of total Bank financing)
Theme Original Percentage Revised/Actual
Percentage
Financial and private sector
development 100% 100%
D. Results Framework Analysis
These indicators and targets were compiled from different project source documents, including the
project proposal, grant agreement and restructuring paper. Normally, indicators and original target
values in the following data sheets are taken from the Results Framework in the Project Appraisal
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Document (PAD), but this project did not have a PAD.1 Appendix J explains how the indicators
were selected and measured in the absence of a PAD.
D.1 Project Development Indicators
Indicator Baseline
Value
Original
Target Value
Formally
Revised
Target
Value
Actual Value
Achieved at
Completion
Indicator 1: Number of people with access to water under the Project
Unit = persons Not
established* 60,000 100,000 190,119
Dates Achieved -- December 2006 June 2011 February 2013
Comments
(incl. % target achieved)
190% target achievement. The actual value at completion
represents the estimated number of persons served through new and
existing connections (household, kiosk and standpipe, agricultural)
on the 35 schemes.
* The original baseline value is not available because baseline surveys were completed only for 10
out of the originally envisioned 21 projects during the pilot phase from 2006-2010 (GPOBA 2009,
pg. 2, GPOBA 2011, pg. 3).
D.2 Intermediate Outcome Indicators
Indicator Baseline
Value
Original Target
Value
Formally
Revised
Target
Value
Actual Value
Achieved at
Completion
Indicator 1: Number of community subprojects accessing finance under the
Project
Unit = subprojects 0 21 40 35
Dates Achieved December
2006 December 2006 June 2011 February 2013
Comments
(incl. % target achieved) 87.5% target achieved
1 At the time this project was approved, recipient-executed trust fund projects under US$5 million were not required to
have PAs.
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Indicator Baseline
Value
Original Target
Value
Formally
Revised
Target
Value
Actual Value
Achieved at
Completion
Indicator 2: Number of new water connections
Unit = connections 0 Not established 8,000 11,505
Dates Achieved December
2006 December 2006 June 2011 February 2013
Comments
(incl. % target achieved)
134% target achieved: Household, institutional, agricultural,
standpipe, and kiosk connections were counted. Institutional
connections are not counted in any of the other indicators.
Indicator 3: No. of new household connections at agreed working conditions
and service standards
Unit = household
connections (incl.
agricultural connections
used for domestic purposes)
0 Not established Not
established 11,398
Dates Achieved December
2006 December 2006 June 2011 February 2013
Comments
The total includes 231 agricultural connections (built expressly for
irrigation), but also used for domestic purposes. Note that the
OVRs referred to a number of connections as “inactive,” and data
on the condition and service standards was not available for most
schemes at the time of project close.
Indicator 4: No. of new kiosk facilities at agreed working conditions and
service standards
Unit = kiosk and standpipe
connections 0 Not established
Not
established 62
Dates Achieved December
2006 December 2006 June 2011 February 2013
Comments
Note that the OVRs referred to a number of connections as
“inactive,” and data on the condition and service standards was not
available for most schemes as of project close.
Indicator 5: No. of existing projects with an increase in revenue, measured as
the average monthly revenue collected from water sales over two
months after project commissioning
Unit = Sub-projects 0 Not established Not
established 12
Dates Achieved December
2006 December 2006 June 2011 February 2013
Comments
(incl. % target achieved)
100% achieved: Of the 33 schemes (35 subjects with two schemes
having 2 subprojects each), 12 schemes were extant prior to the
loan.
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E. Ratings of Project Performance in ISRs
Not available. This is a data sheet (disbursed amounts by Implementation Supervision Report
[ISR] dates and ratings) internally generated by the Operations Portal. The Operations Portal has
not been set up to generate CR templates for this project; no ISRs were required.
F. Restructuring
The project was restructured on June 29, 2011 to extend the closing date for the third time (World
Bank 2011, pg. 1). Target values for some indicators were increased. See Appendix J for a
discussion of the indicators and target values. See Appendix K for a timeline of the various
amendments to the grant agreement, including restructuring.
G. Disbursement Profile
Normally, the Operations Portal generates a disbursement profile (original disbursement forecast
against formally revised forecast against actual disbursement). The Operations Portal is not set up
to generate any CR templates for this size project; an CR is not required.
The project team produced the following graph depicting the movement of the project grant over
the project period. A total of US$2,597,118 was disbursed.
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Tota
l exp
en
dit
ure
(U
SD)
Utilization Schedule
Grant Movement
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1. Project Context, Development Objectives, and Design2
1.1 Context at Appraisal
Millennium Development Goals
By 2006, Kenya required considerable investment to reach the Millennium Development Goal
(MDG) to provide 72.5 percent of the population with safe water supply access. At the time, safe
water coverage in rural areas was just 52 percent. To meet the MDG required adding infrastructure
providing access to an additional 5.6 million rural residents as well as rehabilitation of existing
infrastructure. Infrastructure in suburban areas also required expansion or upgrading. Kenya’s
government budget was unlikely to meet this level of investment (GPOBA 2006).
Community-managed Piped Schemes
In 2002, community-managed piped schemes provided water to about 30 percent of the eight
million rural Kenyans with access to safe water. Communities, self-help groups, the government,
non-governmental organizations (NGOs), and external support agencies provided the investment
capital for these schemes (Njonjo and Lane 2002, pgs. 5-6). Community organizations with
autonomous legal status typically managed these systems (GPOBA 2006).
Water Sector Reform
The government had been implementing reforms in the water sector when this project began. The
2002 Water Act, which established new institutions to take over much of the responsibility for
service provision from the Ministry of Water and Irrigation. The National Water Conservation and
Pipeline Corporation would play the key role in these reforms.
Key organizations mandated under the 2002 Act include:
Water service providers: The principal types of providers are public utility companies,
private operators of small piped networks, and community water users’ associations.
Water Service Boards (WSB): WSBs have the legal mandate to ensure that water and
sanitation services are delivered within their jurisdictions. WSBs sign service provision
agreements (SPAs) with water service providers, and monitor SPA compliance.
Water Services Regulatory Board (WASREB): WASREB is the national regulator
responsible for tariff setting, quality standards, and licensing for WSBs.
Water Services Trust Fund (WSTF): This institution provides grant finance for capital
investment in rural water supplies.
National Environmental Management Authority (NEMA): This institution provides
environmental clearances to water service providers.
2 This section of a Completion and Results Report (CR) is usually completed using information drawn from the Project
Appraisal Document (PAD). However, a PAD was not prepared for this project, in line with then World Bank
procedures for small trust fund grants. Therefore, this section has been completed instead using information from the
GPOBA Eligibility Note and its review (GPOBA 2006, 2006b), the original grant agreements and their amendments
(IDA 2006, EU 2007, Bruce 2007), and the Operations Manual (K-Rep 2006).
2
Water Resources Management Authority (WRMA): This government authority protects and
conserves water resources. Water service providers must receive a permit from WRMA to
abstract a designated volume of water.
The above organizations had begun to transfer assets and responsibility for service delivery to
autonomous local service providers at the start of this project (GPOBA 2006, pg. 6).
Country Assistance Strategy
In 2004, the World Bank issued a new Kenya country assistance strategy (CAS), jointly prepared
with the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency
(MIGA). The CAS aimed to mobilize private sector participation in the provision and management
of infrastructure, including water supply. It also aimed to build capacity and to expand the services
of financial institutions. The CAS cited several examples of programs involving Bank and IFC
cooperation in promoting private investment in infrastructure building (World Bank 2004, pgs. ii,
2-3, 7, 15, 22-23).
Project Antecedent
K-Rep Bank Ltd, the grant recipient, isa microfinance institution registered as a commercial bank in
Kenya.
Prior to this project, the Water and Sanitation Program Regional Program in Africa (WSP-AF) and
the Public-Private Infrastructure Advisory Facility (PPIAF) had collaborated with the Ministry of
Water and Irrigation, the Nairobi Water Services Board and K-Rep Bank to mobilize market-based
funding for small community-managed schemes in Kenya. The work to-date focused on:
support in developing credit assessment and appraisal tools for community-managed
schemes;
assessment of market lending to community-managed schemes in Kenya;
assessment of the potential for business development services to assist community-
managed schemes to develop into small water enterprises; and the
development and assessment of three subprojects for K-Rep appraisal and preliminary loan
approval (GPOBA 2006, pg. 9).
Project Rationale3
The project aimed to increase access to water supply services by leveraging community equity
with commercial financing, and by managing the viability of projects in lower income rural
communities with the support of output-based subsidies. To this end, the project sought to
introduce a new way of financing community-based water supply by using both commercial
financing and output-based aid, instead of relying on government grants to self-help groups.
The rationale for taking this approach to providing access was as follows:
3 The following paragraphs are based on the Eligibility Note (GPOBA 2004) and Mehta and Virjee (2007).
3
Traditional financing was limited and not sufficiently focused on sustainability: Donors,
NGOs, government allocations, and funds raised by community groups traditionally fund
community water supplies. These financing sources have several drawbacks. For example,
external funding sources often prefer new investments instead of improving the operations
and maintenance of existing schemes. Traditional funders also did not conduct rigorous
business planning and appraisal of financial viability, nor did they provide communities
access to professional levels of design, implementation, and management services.
Microfinance institutions could expand available financing, reduce lag times, and
introduce commercial rigor to all phases of the project cycle: Microfinance institutions
provide an alternative and immediately available financing option for community water
supply projects. This would reduce the time communities spend – often over five years –
searching for financing to improve water supply. Commercial financing would also
introduce rigor and professional support to the water supply projects by requiring schemes
are sufficiently viable to repay the loans.
Output-based Aid (OBA) subsidies could develop the link between microfinance institutions
and relatively poor rural and suburban communities: Financial viability studies indicated
that consumers could afford tariffs sufficient to cover operations and maintenance (O&M)
costs, and some debt service on capital. However, Kenya’s relatively poor communities
could not afford the high interest rates associated with commercial capital.
Such an approach was clearly in line with the CAS and its goals of getting the private sector more
involved in infrastructure and service delivery, and building and expanding the capacity of
financial institutions to serve the non-government sector.
1.2 Original Project Development Objectives (PDO) and Key Indicators
Normally the Project Development Objective (PDO) and key indicators are definitively stated in
the Project Appraisal Document (PAD). However, this project did not have a PAD: at the time of
project approval, PADs were not required for small recipient-executed trust funds such as this one.
The original PDO is clear, despite the absence of a PAD, because the various original project
documents state the project objective in nearly identical language. The original 2006 grant
agreement states:
The objective of the Project is to increase access to and efficiency in water supply services for the
poor in rural and suburban areas of Kenya through investments in selected community subprojects
(IDA 2006, pg. 6). 4
4 The Eligibility Note (GPOBA 2004, pg. 9), which is the closest equivalent to a PAD available from among original
project documents, uses nearly identical language in stating the objective. “The objective of the pilot is to increase
access to water supply service by the poor in the rural and peri-urban areas of Kenya and to increase the efficiency of
water supply services.” The Note adds that the “purpose of the pilot is to demonstrate that microfinance has an
innovative role to play in financing small water infrastructure in Kenya.”..
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By contrast, defining the project’s key indicators and their original target values in the absence of a
PAD is not clear-cut. Various original project documents do not use the same set of indicators, and
often do not set any target values.
The following indicators were selected from various project documents. Appendix J provides the
detailed rationale for their selection. For the purposes of the CR, the first indicator (number of
beneficiaries) has been defined as the PDO indicator, and the remaining indicators as intermediate
outcome indicators.
Table 1.1 Indicators and Original Target Values
Indicator Original Target Value
Number of people with access to water under the Project 60,000
Number of community subprojects accessing finance under the
Project 21
Number of new working connections
To be defined during
subproject design and
appraisal. Target values to
equal the sum of values for
all approved subprojects
Number of new individual household connections at agreed
working conditions and service standards
Number of [new] kiosk facilities at agreed working conditions and
service standards
Number of existing projects with an increase in gross revenue;
measured as the average monthly revenue collected from water
sales over two months after project commissioning
Source: See Appendix J
1.3 Revised PDO and Key Indicators, and Reasons/Justification
The project was restructured on June 29, 2011. The restructuring paper listed three performance
indicators with revised target values, as shown in table 1.2. The target values for these indicators
were expanded due to the increased scale of the project as of 2008 (see Section 1.6 for further
explanation).
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Table 1.2 Indicators and Their Target Values, As Given in the 2011 Restructuring Paper
Indicator Revised Target Value
Number of people with access to water under the project 100,000
Number of community subprojects accessing finance under the
project 40
Number of new water connections 8,000
Note: No original target value had been established for the third indicator, number of new water
connections. See table 1.1 for further explanation.
Source: World Bank 2011.
1.4 Main Beneficiaries
Consumers served by the water schemes that received project financing comprised the main
beneficiaries. The project originally targeted poor rural areas of the country with an estimated
average annual household expenditure of US$150 per month or less (GPOBA 2007, pg. 2).
Beneficiaries would receive two types of benefits:
Existing consumers would receive better standards of service in terms of quantity and hours
of supply, due to improvements in the capacity and management of existing schemes.
New consumers would receive access to water services either from new schemes or from
the expansion of existing schemes.
The original project targeted 60,000 beneficiaries served through existing or new connections from
the 21 schemes in the districts and city area under the Athi Water Services Board (formally called
the Nairobi Water Services Board (WSB)).
The revised project expanded the number of targeted beneficiaries to 100,000 persons served
through existing or new connections from 40 schemes located in seven of the eight WSB service
areas. Schemes under the Northern WSB were excluded due to logistical difficulties of working in
this area of Kenya.
1.5 Original Components
The grant agreement specifies two parts: investment financing and project management.
Investment Financing
The project was intended to provide output-based aid subsidies to community scheme management
groups that successfully used commercial loans to rehabilitate and augment existing piped water
schemes or to construct new piped schemes.
The community group would provide 20 percent of the financing upfront, and receive a loan for K-
Rep Bank for the remainder. K-Rep Bank followed its normal due diligence process for the loan
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appraisal. The community group would also receive a subsidy of up to 40 percent of total capital
expenditure after meeting the output targets, which were an agreed number of connections and a
certain level of monthly revenues from consumer payments for two months following project
completion. This subsidy would allow the group to repay a large portion of the loan immediately.
Project Management
Community groups were eligible for an additional subsidy to pay Project Implementation
Consultants (PICs) for technical services during construction, such as procurement, contractor
supervision, reporting, and building the technical, financial, and organizational capacity of the
users’ associations to manage the schemes.
This component also financed the Project Auditing Consultant (PAC), which prepared the baseline
and Output Verification Reports (OVRs), certifying that outputs had been achieved and a given
amount in subsidies could be disbursed.
1.6 Revised Components
Project components were not redesigned. However, the scale of the project was expanded from 21
subprojects limited to the area covered by the Athi WSB to a nationwide project involving 40
schemes in areas covered by all but one of Kenya’s WSBs.5 A European Union Water Facility
grant that more than doubled the financial size of the original project facilitated this change.6
1.7 Other Significant Changes
Additional Assistance to Prepare Loan Applications: PPIAF awarded a grant of US $523,719 to
finance a Project Development Facility at WSTF after project start-up. The final amount disbursed
under this facility was US$325,951, with the remaining US$197,768 refunded (World Bank
2009b, pg. 3,6; Advani 2011, pgs. 12-13; personal communication with the author).
The facility partly financed the costs of support organizations (NGOs and consultants) to assist
communities with feasibility studies and bankable K-Rep loan applications. WSTF signed a
contract with Price Waterhouse Coopers (PwC) on May 14, 2009, to act as the Project
Development Facility Manager (World Bank 2009b, pg. 3,6; Advani 2011, pgs. 12-13; personal
communication with author).
Ultimately, 35 project development grants of US$9,000 each were awarded to 33 communities (2
communities had 2 grants each) after the management committees submitted viable expressions of
demand and contributed US$2,000 toward the cost of the support organizations to assist in
preparing the loan applications (WSP, GPOBA, et al 2011).
5 Schemes under the Northern WSB were excluded due to logistical difficulties in working in that area of Kenya. 6 See Appendix A on changes in the financial size of the project, and Appendix K for a timeline of amendments to the
project grant agreement.
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Partial Credit Guarantee: K-Rep secured a revolving US$5 million guarantee facility from the
U.S. Development Credit Authority in 2009. The terms allowed for sharing losses on a 50 percent
pari passu basis at a portfolio level (GPOBA 2009; Advani 2011, pg. 12).
Project Closing Extension: The project closing was extended three times, as detailed in Appendix
K.
Allow Municipal Water Service Providers to Participate in the Project: The second supervisory
mission agreed that the project could be extended to subprojects that would be owned and
managed by WSBs and municipal water utilities, rather than limited to schemes in which
community management committees were the designated water service providers.
Seven subprojects had this new type of management structure: Mukangu (KIRIWASCO),
Nyamasaria (KIWASCO), Kenol-Kabati (MUSWASCO), Kiambi Network (EWASCO), Kamweli
(KIRIWASCO), Rabai Power (KIMAWASCO) and Kayole Soweto (NCWSC). In the case of
Nyamasaria, KIWASCO delegated the authority to identify and connect new consumers, and carry
out meter reading, billing and revenue collection to community contractors, or Master Operators.
These operators were identified and trained by KIWASCO (Tertiary Engineering Consultants
2007).
2. Key Factors Affecting Implementation and Outcomes
2.1 Project Preparation, Design, and Quality at Entry
The project exceeded most target values for its (imputed) PDO and outcome indicators.
First, the project design team correctly identified a niche for providing investment subsidies to
water schemes owned and managed by community organizations through a microfinancing
institution. As a result of this innovative project design, the borrower (K-Rep Bank) and other
banks have become keenly interested in this business line, provided that substantial subsidies are
available for the costs of constructing, rehabilitating, or expanding the scheme networks and main
civil works. The Dutch WASH Alliance and the United States have developed projects with
similar designs, based on the experience with this project.7
Second, the output-based aid approach created incentives for K-Rep Bank to take on a substantial
role in oversight, which in turn led to cost savings and higher construction quality (K-Rep Bank
2013, pgs. 12-13).
Significant preparation work was undertaken before the project was approved, notably:
7 K-Rep Bank has signed a memorandum of understanding with the Practical Action to provide loan products to small
and medium enterprises for waste management, water, sanitation, and hygiene. The USAID SUWASA Kenya project
will partner with several commercial banks to provide loan products for water services to the urban poor. K-Rep has
partnered with SUWASA to adapt these loans to financing urban utilities in poor areas. Communication with former
K-Rep Special Projects Depart Head, and former project manager, October 17, 2013, Nairobi, and Samual Baiya,
WSP-Kenya, email, November 25, 2013.
8
the development of credit assessment and appraisal tools for community managed piped
schemes;
an industry assessment of the market for financing such schemes in Kenya;
an assessment of the potential of consultancy firms to provide business support services to
relevant schemes; and
the development and assessment of three subprojects for appraisal and preliminary loan
approval (GPOBA 2006, pg. 9).
Despite this preparation, the project immediately fell behind schedule and faced other challenges,
described below.
Certain relatively small changes in project preparation and design could have mitigated
implementation delays and their consequences, including:
An evaluation of the capacity and time needed for WSTF and K-Rep to complete all the
steps leading up to loan appraisal.
More time allotted to secure ownership of the project processes by the relevant institutions
and organizations. Stakeholders could have prepared using project documents such as the
ESMF and Project Operations Manual. Stakeholder participation should have been made
conditional upon workshops and training sessions attendance.
A loan disbursement window that ended well before the project closing date.
The above procedures are typical for World Bank projects, particularly when lending to financial
intermediaries. It was not clear at the time of project appraisal that these procedures would be
necessary given the relatively small recipient-executed trust funds. Readers will recall that for this
same reason, no PAD was prepared for this project.
Other factors behind the implementation delays indicate some fundamental weaknesses in the
original project design, including:
Limited private sector capacity: The lack of capable support organizations and project
implementation consultants was a major factor in delays.
Limited demand for financing from community management committees: Identifying
community-managed schemes with management organizations that were able to present
adequate loan applications proved difficult. In addition, some communities did not take up
the loan offers. The World Bank approved a significant change in project design whereby
loans could be extended to schemes owned and managed by WSBs and municipal water
utilities, rather than those in which community management committees were the
designated water service providers. K-Rep Bank, in its final report on the project, stressed
the potential for lending to water utilities (K-Rep Bank 2013, pgs. 13-16).
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2.2 Implementation
The time lag from subproject identification to loan took longer than anticipated during the pilot
phase (2006-2010) due to the time required to:
obtain community management committees registered as legal entities;8
sign a Service Provision Agreement with the WSB;9
fulfill the water abstraction permit requirements from WRMA(World Bank 2009a);
obtain approval of project reports by NEMA (World Bank 2009a);
carry out the considerable, unfunded work in developing the proposals initially required
from the Athi WSB. These responsibilities were later transferred to K-Rep Bank (World
Bank 2009a); and
resolve title disputes for the land where the scheme infrastructure would be (WSP,
GPOBA, et al 2011).
PICs initially performed poorly, partly because they lacked experience. Meanwhile, communities
lacked the expertise to manage PICs, and the contracts were not sufficiently rigorous in terms of
stating outputs and penalties for failing to deliver on time.
As a result, there were considerable delays in planned versus actual achievements for the project as
originally designed. For example:
One subproject was completed by December 31, 2008, the original project closing, versus
the planned 21 subprojects (World Bank 2009).
One year after the original closing date (December 2009), six of the originally planned 21
subprojects had been completed.
Ten of the originally planned 21 subprojects were completed by November 2010, about
two years after the original closing date (Advani 2011, pg. 1). 10
8 Most community water scheme management committees were registered simply as self-help groups, which was not
sufficient for loan purposes. Legal registration was delayed due to the need to get ministerial signatures (GPOBA
2009a, pg. 5). 9Getting SPAs signed was delayed because the WSBs had not resolved how to allow for community management
committees as providers in areas that had been granted to municipal water companies. The WSBs worked out various
arrangements, all of which required approval by the WSRB. The project also encountered situations whether
overlapping SPAs had been issued, and where the exclusivity clauses under SPAs had not been enforced (World Bank
2009a). Simplified procedures and contracts needed to be established (World Bank 2009b, pg. 6). 10 By January 2009, one subproject had been completed, and seven were in various stages of construction. A total of
13 subprojects (including the preceding 8) had been identified as eligible for loans (World Bank 2009). By December
2009, six subprojects had been completed, with another six loans approved, of which 3 subprojects were under
construction. Meanwhile, the scaling up had begun, with 24 sub-projects under study (World Bank 2009, pg. 4).
Note: A February 2010 GPOBA Semi-Annual Report gave conflicting account of outputs, reporting five completed
subprojects, and nine subprojects under construction (GPOBA 2010, pg. 2-3).
10
Implementation improved during the second national phase (2011-2013) of the project. The project
team deserves credit for taking steps to incorporate these lessons, notably:
K-Rep Bank assumed from the communities more contractual responsibilities for the
management and supervision of PICs, and set more rigorous standards for PIC pre-
qualification (World Bank 2009a, 2009b, pg. 6). K-Rep Bank branch staff and the Special
Operations Department devoted considerable staff resources to supervising the project.
The project began extending loans to communities whose schemes were owned by WSBs
and managed by municipal water utilities.
WSP-AF provided technical assistance to K-Rep Bank.
Disbursements indicate that most construction occurred toward the end of the project (see Figure 1
below). Nearly three-quarters of the 25 OVRs for the second phase of the project were conducted
less than one month before project closing. Three OVRs were conducted on the last day of the
project. (Appendix B, table B.1 presents the dates of the 35 OVRs for project phases 1 and 2.)
Figure 1: Cumulative K-Rep Loan Disbursements for Subprojects in US Dollars
Source: Prepared by project team, WSP-AF, from data in project monitoring system.
Implementation delays led to a several negative consequences, namely:
A number of communities failed to receive the planned subsidies because they had not
finished the planned number of connections by project closing.
Some schemes had little to no period of post-implementation management support and
monitoring, as construction was completed very near to the project closing.11 Revenue
projections had to be used in place of actual revenue in order to calculate the subsidies.
Key data with which to evaluate the project outcomes were not available on all or most of
the schemes. For example, Phase 2 projects had not established whether they could meet
their target monthly average revenues. Meanwhile, the PAC reported that most subprojects
11 As will be described in the section on post-implementation support, WSP will try to address this problem through
technical assistance starting in late 2013.
11
held their revenues as debt (Tertiary Consulting Engineers 2013, pg. 8). Only eight
subprojects were able to report on nonrevenue water, and only 24 subprojects could report
on collection efficiency (See Appendix C).
Some civil works were apparently not completed by project closing (see Appendix B).
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization
(a) M&E Design
The borrower’s M&E system comprised three components:
Pre-loan monitoring: K-Rep Bank tracked the progress of the subprojects toward a loan
offer and acceptance. As mentioned above, several of these steps proved time-consuming,
such as obtaining legal registration for the scheme management committees; receiving
SPAs from the WSBs; obtaining environmental clearances from NEMA and water
abstraction permits from WRMA; and securing land (title or access) for the infrastructure.
Construction monitoring: The PICs were required to provide monthly diagnostic reports.
This monitoring continued for the 24 months during which the contract with the PICS was
in effect.
OBA output monitoring: The process was designed as follows:
The OBA target outputs, derived from the scheme business plans for each subproject
were clearly stated in the K-Rep loan.
Prior to construction, the Project Auditing Consultant (PAC) visited the subproject to
assess the baseline situation relative to specific outputs, for example the number and
type of existing connections, and to confirm the eligible project cost, cost per capita,
and expected OBA subsidy (i.e. 40 percent of the eligible cost).
Upon completion of construction, the water user association submitted an Outputs
Report to K-Rep Bank.
The PAC then revisited the subproject to verify the outputs that had been achieved
relative to the targets, and to recommend payment of the subsidy based on what
percentage of the outputs had been achieved.12
If the outputs were less than 100 percent, the PAC conducted an additional field visit,
not more than six months after subproject commissioning. The remaining subsidy could
be authorized if all output targets had been achieved (K-Rep 2006, pg. 17).
In addition to the above M&E system, the schemes were to be supervised by the sector institutions
and NEMA:
12 Each subproject is assigned a score that weights coverage and service levels achieved against established targets.
The total score is calculated as = (coverage weights x coverage score + service weights x service score).
12
Water Service Boards: The WSBs were responsible for requiring WUAs to submit annual
reports with specific indicators to track performance in sustaining outputs. Recommended
indicators included:
number of connections
revenue
total number of households benefiting from increased access
average daily consumption per connected household
percentage of population in target area with access to water supply
collection efficiency (K Sh collected/K Sh billed)
average hours of access to water supply per day
number of interruptions per given period (K-Rep 2006, pg. 25)
Environmental Safeguards: NEMA and WRMA were responsible for monitoring
compliance with the environmental clearance and water abstraction permit. The scheme
management committees were required to submit an annual audit report to NEMA as part
of this process.
WSP-AF monitored the major milestones in the loan development and implementation for each
subproject.
(b) M&E Implementation
The M&E system allowed K-Rep Bank and WSP-AF to identify and track problems in the
subproject cycle. For example, it spotted weak operations in the Mataraa scheme and management
problems in the Gitaru scheme (WSP, GPOBA et al., 2011, pg. 3).
However, the M&E system was less effective at collecting data to track the PDO and outcome
indicators. Appendix B details the inaccuracies in estimating the number of connections, and
Appendix J described other challenges in measuring the PDO and Outcome indicators.
A principal problem with the M&E was that it did not track the performance of the schemes
beyond the first two months of operations. For a slight majority of schemes, data on the first two
months of operations are not even available since construction was completed so close to project
closing. There is also no detailed analysis of operations and efficiency for the ten schemes that
have been in operation for over two years. The economic and financial analysis had to rely largely
on data from the OVRs and focus group discussions in six subprojects.
The M&E system was also weak in monitoring the performance of sector institutions. As noted
above, the WSBs, WRMA, and NEMA play critical and ongoing roles in the regulation and
oversight of community-managed schemes. While the M&E system performed well in tracking
whether scheme management applied for SPAs, water abstraction permits, and environmental
clearances, it did not track how well WSBs, WRMA, and NEMA evaluated and monitored
compliances.
13
2.4 Safeguards and Fiduciary Compliance
Safeguards
An Environmental and Social Management Framework and a Resettlement Policy Framework
were prepared. The initial prescribed steps in these documents were followed, such as obtaining
water abstraction permits and environmental clearances for each subproject. It is unclear whether
the scheme management organizations submitted the required annual environmental audits,
although for most schemes, the first audits were not due until after project closing.
Fiduciary Compliance
K-Rep Bank submitted quarterly Financial Monitoring Reports on time and with the approval of
the World Bank.
K-Rep Bank submitted a financial audit report covering the period from inception to June 30,
2010. The audit was conducted in accordance with international accounting standards and the
auditor issued an unqualified opinion on the financial statements and special account statements as
of June 30, 2010. No major accounting and internal control weaknesses were noted during the
audit that would affect the project implementation, and the World Bank accepted the report (WSP
et al., 2011).
K-Rep Bank submitted a subsequent financial audit report, covering the period between July 1,
2010, and June 30, 2012 (Kimani and Associates 2012).
The 2011 Supervision Mission attempted a procurement review, although it did not provide all
necessary information. The mission noted the need for K-Rep Bank to (i) improve procurement
filing and record keeping; (ii) adhere to the provisions of Bank’s Guidelines in carrying out
procurement activities; (iii) use Bank’s standard bidding and request-for-proposal documents
wherever possible; and (iv) prepare and submit to the Bank a procurement plan for the proposed
project extension for review and clearance. K-Rep Bank subsequently worked with a World Bank
Procurement Specialist to update the project operations manual according to Bank procurement
procedures.
2.5 Post-completion Operation/Next Phase
WSP-AF recognized that most scheme management organizations lacked the skills and systems to
manage the schemes efficiently, and were unlikely to have sufficient revenue to hire private
operators. WSP-AF therefore plans to recruit a consulting firm to provide technical assistance to
the 33 schemes, and to develop training materials and management systems.
WSP-AF has identified four options for a future project building on this one:
A repeat project with K-Rep Bank
Work with WSTF to use donor funding to provide loans to rural community-managed
schemes
Work with WSTF to use donor funding to provide loans to rural community-managed
schemes using an OBA approach
14
Work with WSTF to borrow funds to provide loans to rural community-managed schemes
using an OBA approach
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design, and Implementation
Relevance of Objectives: The need to improve access and efficiency in schemes owned and
managed by communities remains highly relevant, as this infrastructure will continue to provide
water to a significant portion of the rural and suburban populations.
Improving access in suburban areas to schemes owned by WSBs and managed by water utility
companies also emerged as a relevant project objective.
Relevance of Design and Implementation: Project design has a number of elements.
A key element in the project design was to provide subsidies through commercial banks for
constructing, rehabilitating, or upgrading the network and major infrastructure of the schemes
owned and managed by communities. The subsidies indirectly serve to make the water tariffs and
interest rates affordable to the consumers and management committees respectively, and to reduce
the risk to the bank (K-Rep).13
Donor institutions in the Netherlands and the United States are developing programs with very
similar designs (see Footnote 7).
Implementation through a commercial bank worked well. The OBA approach created incentives
for the borrower to take on more oversight than would otherwise have been the case, which in turn
led to cost savings and higher construction quality (K-Rep Bank 2013, pgs. 12-13). At the same
time, there are limits to a bank’s role, notably the short duration of bank supervision (24 months in
the case of this project), and monitoring environmental and water abstraction compliance.
3.2. Achievement of Project Development Objectives
The project reached 190 percent of the PDO’s target indicator. As explained in Appendices A and
J, this achievement probably underestimates the actual achievement, because new connections
(and therefore additional beneficiaries) were likely added after connections had been tabulated for
the purpose of paying the subsidies.
The project similarly achieved 135 percent of the target value for the number of new connections.
Again, this figure underestimates the number of new connections because it does not include
institutional connections.
13 The subsidies cover part of the investment costs, thereby reducing the loan amount and limiting the tariff impact of
the investment.
15
No target values were established for two additional indicators: the numbers of new household
connections and kiosks at agreed working conditions and service standards. The numbers of these new
connections represented a successful outcome, given that the overall target for new connections was
exceeded. On the other hand, the monitoring system did not clearly establish that all these connections
were at agreed working conditions and service standards.
One indicator fell short of the target value: the number of subprojects financed totaled 87.5 percent
of target.
In addition to the PDO and outcome indicators that were selected ex post facto (see Appendix J),
the project documents refer to a number of other efficiency indicators: low rates of nonrevenue
water; monthly revenue targets for all schemes; revenue collection efficiency; population coverage
in the supply areas; etc. Data are not available on these indicators due to an M&E system that
largely ended with the OVR, and the short time between construction completion and project
closing for most subprojects.
3.3 EfficiencyThe present financial projection indicates the total portfolio’s financial internal rate
of return is 18 percent (with the subsidy payments taken into account). This is just at the hurdle
rate equivalent to K-Rep Bank’s lending rate. The portfolio, however, yields a negative net present
value of minus US$50,000. The financial performance of the subprojects is summarized in table
3.1, below:
Table 3.1 Sub-Project Summary Financial Performance
IRR with
subsidy
IRR
without
subsidy
Net Present
Value
(US$)
Operating
Cost
Coverage
Loan Life
Debt
Service
Coverage
Mean 24% 10% -1,400 2.17 1.97
Minimum -9% -19% -166,000 1.19 0.26
Maximum 159 76% 130,000 8.53 4.72
No. meeting 18% hurdle rate 15 13
No. with NPV or OCC > 1 14 35
No. with DSCR > 1.5 18
% of 35 meeting relevant
criteria
43% 37% 40% 100% 51%
Source: Appendix C, table C.4
Despite the portfolio’s weak financial performance, the project’s outcome confirms that
investments in water produce significant positive economic returns. The economic analysis was
conducted based on information collected in focus group discussions conducted in six subproject
areas. The economic internal rate of return of the six subprojects ranged from 64 percent in Hindi
to as high as 392 percent in Nyamasaria. This yielded benefits of between US$2 and US$10 for
every U.S. dollar invested in water. The economic rate of return results are summarized in table
3.2 below for the six subprojects:
Table 3.2 Summary Results of Economic Analysis
Hindi Koibatek Kiptere Nyamasaria Olepolos Gitangu
16
Economic Internal
Rate of Return 64% 261% 161% 392% 72% 182%
Economic Net
Present Value (US$) 715,000 1,115,000 1,285,000 5,124,000 1,945,000 608,000
Cost of Investment
from Project (US$) 112,000 200,000 166,000 341,000 119,000 39,000
Cost of Household
Investment (US$) 241,000 47,000 136,000 157,000 684,000 29,000
Total Cost of
Investment (US$) 353,000 247,000 302,000 499,000 803,000 68,000
Benefit-Cost Ratio 2.0 4.5 4.3 10.3 2.4 9.0
Source: Appendix C, table C.7
3.3 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development Many of the schemes served low-income households. The water provided a basic service and a
productive input to increase livelihoods.
Introducing on-premise connections reduced the burden of water collection, which positively
affected women and children, who traditionally collect water.
Most of the schemes strengthened community-based organizations.
(b) Institutional Change/Strengthening
K-Rep Bank was strengthened in its capacity to provide loans to water schemes (see Section
5.2.b).
(c) Other Unintended Outcomes and Impacts
None
3.4 Summary of Findings of Beneficiary Survey
None
4. Assessment of Risk to Development Outcome
The ERR and IRR establish the financial viability of the subprojects.
17
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry Relatively small changes in project preparation and design, which are usual in World Bank
preparation of financial instruments and investment loans, could have mitigated implementation
delays and their consequences (see Sections 2.1 and 2.2).
(b) Quality of Supervision
A total of three supervision missions were held: two missions in 2009, and one in April 2011. The
aide memoires from these missions provide good documentation on the first phase (2006-2010) of
the project.
Since 2012, WSP-AF has maintained an Excel-based monitoring system to track milestones in the
subproject cycle (see Section 2.3), and employed several local consultants to gather the data for
this system. These consultants also provided technical assistance to K-Rep Bank in the loan
approval process and implementation.
5.2 Borrower Performance
(a) Government Performance
The various government institutions serving the water sector – WSTF, NEMA, WRMA, WSBs,
WASREB – performed their roles in supporting the community management committees in their
role as water service providers. Several utility companies actively worked on implementing
subprojects.
(b) Implementing Agency or Agencies Performance
K-Rep Bank built a competent appraisal team under an experienced engineer, and worked closely
with the communities, SOs, and PICS throughout the loan development process and
implementation. K-Rep Bank eventually had to commit over US$3 million to a water credit
revolving fund in order to generate sufficient funds to cover the costs of managing this portfolio
(Advani 2011, pg.18).
6. Lessons Learned
(1) Subsidies can leverage commercial financing from banks to make pro-poor investments
viable and attract equity from communities to invest in their own future
The project represents additional investments of US$4.2 million in piped water supply, where
public funds shouldered only a third of investments, hence freeing up public resources and
leveraging additional funds from the private sector. Communities that participated in the project
18
reported benefits related to the increase in productivity due to the availability of water supply.
Households reported increased animal husbandry and vegetable farming, which helped them to
generate supplementary income from agricultural products sales. A post implementation review
estimates that every US$1 invested in the subprojects yielded economic benefits of between US$2
and US$10.
(2) Willingness to pay for piped water supply is critical
The willingness and ability to pay for piped water supply was a key factor in identifying viable
subprojects. The lender sought to confirm that target consumers were willing and able to pay the
connection fees and monthly bills, and that demand for piped water would not be eroded by
competing sources. All the subprojects financed installed meters and bill according to volume
consumption, mostly using rising block tariffs. A typical subproject has between 250 and 600
individual connections, and tariffs vary from US$0.45 to US$1 per cubic meter. The average
monthly bill for an individual household connection varies from US$7 to US$18. Poorer
consumers were served through point water sources such as kiosks.
(3) Investment choice and timing of subsidy payments significantly affects the repayment
profile
The lender expressed a preference for subprojects that could be implemented within one year and
quickly scaled up to ensure rapid generation of operating revenues. Linking new connections to
payment of the OBA subsidy allowed the subsidy to be used promptly to pay down part of the
loan, hence easing the expense burden.
Construction delays penalized subprojects due to capitalization on the increase in interest owed. In
cases where turnkey contractors were used, the implementation time was shortened, resulting in
cost saving from lower interest payments.
Rapid buildup of a customer base proved critical for the borrower: significant differences in
financial performance are evident between communities that were able to connect larger numbers
of households at once and those that had problems offering a reliable service to customers at the
outset. Delays also resulted in uncollected grants. Eighteen of the 35 subprojects attained less than
97 percent of the planned subsidy, mostly because they failed to meet the revenue target in time.
This resulted in US$250,000 subsidies that were not drawn. A softer target – or more time to
achieve the target – would have enabled communities to access these funds and reduced their
financial loss without compromising the sustainability of the project. In addition, a higher
proportion of subsidy could have generated more bankable subprojects, resulting in broader
economic impact with positive economic and financial returns.
(4) Labor should not be accepted as a community contribution
Voluntary labor contributions introduced significant uncertainty into the construction timeline;
delays significantly impacted interest owed and therefore the affordability of the schemes and
tariffs. Therefore, K-Rep Bank subsequently required community organizations to make
contributions in cash or tangible in-kind items, such as with construction materials.
19
(5) Significant technical assistance is required; the lending institution should prequalify
support organizations (PIC), and have a contractual role in supervising these contracts
While communities were keen to participate in the project, many lacked the financial experience to
implement and manage the subprojects efficiently. The project spent a significant percentage of the
investment (22 percent) on technical assistance to support community and on project preparation,
as well as to train K-Rep Bank field staff.
Additionally, numerous private firms proved to be technically incompetent and/or unsuited to
working with WUAs as clients. The WUAs often lacked the technical expertise to select good
consultants and supervise their performance. K-Rep Bank eventually addressed these problems by
prequalifying consultants and having a contractual role in their supervision.
(6) The lending institution needs a particular set of skills and tools, and sufficient capital and
commitment, to manage micro-financing for community water schemes
K-Rep Bank had to build a competent appraisal team under an experienced water engineer and
work closely with both the communities and the PICs throughout the entire loan process. WSP-AF
worked with K-Rep to develop the appraisal tools appropriate for this kind of lending. K-Rep Bank
eventually had to commit US$3 million to a water credit revolving fund in order to generate
sufficient revenues to cover the costs of managing this portfolio (Advani 2011, pg. 18).
(7) Define a loan disbursement window that ends well before project closing
Several communities that had taken out loans during the project period did not complete their
outputs in time to receive subsidies. Other schemes were completed so close to project closing that
estimates had to be used to calculate whether revenue outputs had been achieved. These problems
could have been avoided by closing the loan disbursement window at least 12 months prior to
project closing.
(8) The scale-up of the approach requires it to be embedded in a programmatic water sector
initiative
Kenya hosts dynamic sector institutions that could increase support to service providers to develop
their capacity for self-financing and management. Presently, national institutions focus on
infrastructure construction, but they could move towards providing technical assistance and project
development support, and subsidize financing/grants to counties and communities to tap other
sources of financing, including commercial funds. Such a scheme would help broaden the initiative
and provide incentives for local governments to develop skills and experience in sector planning,
management and investment, while providing checks and balances through national oversight. A
nationally managed subsidy scheme could attract other local lenders to finance investments in
water, thereby increasing competition for financing. It would also facilitate cooperation between
the national government and local institutions to progress towards poverty alleviation and
sustainable development.
20
7. Comments on Issues Raised by Grantee/Implementing Agencies
(a) Grantee/Implementing Agencies
i) Legal registration of the community water projects requires careful attention and early consensus to avoid
regulatory delays in project preparation. This project required a significant amount of time to register
communities to ensure they were recognized as legal entities.
ii) The identification of a competent Project Implementation Consultant was key to improving the rate of
implementation of Phase II projects. The consultant ensured stronger overall project and organizational
oversight.
iii) The Output-based Aid approach led to a greater number of on-budget, outcome-oriented subprojects
than is typical with the upfront grant-financed approach to projects. Incentives for the communities and
financier to pursue savings to fit the project cost to the credit capacity available helped to control costs.
iv) The World Bank’s technical assistance enabled training of the newly prequalified support organizations
and improved consultancy services in managing the 25 projects.
21
Appendix A. Project Costs and Financing
(a) Grant Proceeds Allocations (in US$ equivalent)
Category
Appraisal
Estimate
(US$)
Actual/Latest Estimate
(US$)
Percentage of
Appraisal
Goods and Services
Part A: Investment Financing 800,000 1,742,300 218%
Part B: Project Management
(Consultant Services) 351,300 863,945 246%
Bank charges 238
Total Amount 1,151,300 2,606,483* 227%
Source: GPOBA, 2013 “Summary of
Sources and Uses of Funds, 2nd Quarter
ending 30th June 2013”
*Includes EU grant that was not signed at time of appraisal
(b) Financing
Source of Funds Type of
Cofinancing
Appraisal
Estimate
(US$)
Actual/Latest
Estimate
(US$)
Percentage of
Appraisal
Trust Funds Grant 1,151,300 2,606,483 227%
Global Partnership on Output-based Aid
22
Appendix B. Outputs by Component
The project comprised two components: investments and consultant services. The first three subsections
below describe the outputs for the investments. The final subsection describes the consultant services.
Appendix B.1: Civil Works
The following quotations from the second supervision report describe the types of investments financed
through the project (WSP, GPOBA, et al, 2011, pgs. 2-3):
Rehabilitation and/ or augmentation projects: Many operational CWPs require investment to upgrade
or replace existing infrastructure, such as house taps, and/or to expand services to those who do not
have higher service levels. Such investments will benefit the community through a higher average level
of service, for example a higher reliability of service for all households, as well as by expanding
services to additional households. These investments include increased storage facilities, expansion and
replacement of pipelines or specific new connections.
New/ Greenfield project: This refers to the establishment of a new water project and would include all
normal components of a piped community water project. The new project is to be registered as a legal
entity. Access to the project will be for members who have paid membership fees as suggested by
project’s by-laws. Such systems serve the entire population through a mixture of service levels, including
individual connections and shared communal water points.
Below, Table B.1 presents the available information on the status of the civil works. This information
comes from the Output Verification Reports, some of which were completed as long ago as 2009. It
therefore does not present a view of the civil works as of project closing (February 2, 2013) except for the
18 subprojects that were visited in February 2013. The table indicates that:
20 percent of the subprojects had no outstanding civil works
26 percent of the subprojects had no available information on the status of the civil works
54 percent of the subprojects had outstanding civil works
Table B.1: Outstanding Civil Works on the 35 Subprojects as documented in Output
Verification Reports, 2009-2013
Sub-Project Outstanding civil works Date of Output
Verification
1 Kiarutara Ragia None 2012 -- October 12
2 Masogo None 2013 -- February 22
3 Fortsmith None 2013 -- January 13
4 Kiambi Network None 2013 -- January 17
5 Kenol Kabati None 2013 -- February 20
6 Kamirithu Ph II None 2013 -- February 28
7 Mt. Kenya Buuri None 2013 -- February 22
8 Kamweli VDC
Construction of the second water kiosk was still
pending with plumping works; minor finishing
works such as construction of chambers for valves
and water meters
2013 -- January 16
23
Sub-Project Outstanding civil works Date of Output
Verification
9 Ng’ondu Installation of chamber covers, air valves and wash
out valves. 2013 -- February 8
10 Kanunga Installation of the vent pipes on top of the newly
constructed 225m3 Ground Masonry Tank (GMT) 2013 -- February 7
11 Nyamasaria Installation of valve chambers and covers; visibility
branding for the project 2013 -- February 28
12 Amani Drive The new water kiosks still required some final
finishing works 2013 -- February 28
13 Kamureito
Construction of the Composite Filtration Unit
(CFU) and the backwash tank; installation of master
meters at the intake works and on the main water
storage tanks, as well as installation of covers for
valve chambers
2013 -- February 27
14 Rabai Power Electricity power connection; master meters were
not yet installed on the system 2013 -- February 26
15 Tuiyobei
Installation of 3 No. water kiosks, extend the water
distribution to Kipkelion town; Installation of
master meters on the main pipeline
2013 -- February 26
16 Ngecherok Construction of water kiosks, and minor finishing
works such as valve chambers and covers 2013 -- February 25
17 Hindi Magogoni To top the newly constructed 225m3 Ground
Masonry Tank (GMT) 2013 -- February 25
18 Kiptere
Installation of valves at some sections and
construction of chambers for valves and water
meters. Installation of a chlorination tank at the
main water storage tank
2013 -- February 21
19 Mukangu Rehabilitation of pipes, consumer connections and
pipe laying works 2013 -- February 21
20 Koibatek Installation of valves and fittings on the pipelines,
and minor tie-in works at the water storage tanks 2013 -- February 19
21 Kayole Soweto Master meter yet to be installed on the distribution
main 2013 -- February 19
22 Rungiri Chamber covers and pipeline testing 2013 -- February
23 Kiamumbi Ph II
Installation of air valve and wash out valve,
chambers and chambers cover slabs, and repairs of
leaks on distribution pipelines especially at the
fittings locations.
2012 -- September
18
24 Ngeteti Installation of zonal meter chambers and chamber
cover slabs 2012 -- October 9
25 Rironi Installation of covers on chambers for air valves,
wash outs and zonal meters 2012 -- October 8
24
Sub-Project Outstanding civil works Date of Output
Verification
26 Kamirithu I Unfinished 3m3 water tower 2009
27 Karweti Not detailed in the OV 2009
28 Kiamumbi I Not detailed in the OV 2009
29 Gitaru Not detailed in the OV 2009
30 Mataara Not detailed in the OV 2010
31 Gatangu Not detailed in the OV 2010
32 Kamandura Not detailed in the OV 2010
33 Kinoo Not detailed in the OV 2010
34 Karanjee Not detailed in the OV 2009
35 Olepolos Not detailed in the OV 2010
Source: Information compiled from Output Verification Reports by Project Audit Consultant to WSP-AF, November
2013.
Appendix B.2: Connections
The best estimate for the total number of new connections completed under the project is 11,505,
comprising household connections, agricultural connections used for domestic purposes, kiosks, standpipes,
and institutional connections.14 The note to Table B.2 below explains the different types of connections.
Table B.2: Numbers of New Connections
Schemes
Total New
Connections
(Indicator 2)
Household
Connections, and
Agricultural
Connections Used for
Domestic Purposes
(Indicator 3)
Kiosk and
Standpipe
Connections
(Indicator 4)
Institutional
Connections
Kiamumbi I and II 760 760 0 0
Kamirithu I and II 860 855 5 0
Amani Drive 147 143 4 0
Fortsmith 126 122 3 1
Gatangu 123 123 0 0
Gitaru 113 114 -1 0
Hindi Magogoni 107 100 7 0
Kamandura 263 263 0 0
14 Table J.2 provides figures on the total (new and existing) number of connections by type of connections.
25
Schemes
Total New
Connections
(Indicator 2)
Household
Connections, and
Agricultural
Connections Used for
Domestic Purposes
(Indicator 3)
Kiosk and
Standpipe
Connections
(Indicator 4)
Institutional
Connections
Kamureito 455 440 4 11
Kamweli VDC 163 159 4 0
Kanunga 39 39 0 0
Karanjee 224 224 0 0
Karweti 62 62 0 0
Kayole Soweto 1607 1607 0 0
Kenol Kabati 1400 1400 0 0
Kiambi Network 552 544 8 0
Kiarutara Ragia 157 157 0 0
Kinoo 79 79 0 0
Kiptere 392 369 4 19
Koibatek 530 520 2 8
Masogo 183 172 5 6
Mataara 555 555 0 0
Mt. Kenya Buuri 234 231 3 0
Mukangu 85 85 0 0
Ng’ondu 61 61 0 0
Ngecherok 43 41 2 0
Ngeteti 63 63 0 0
Nyamasaria 1558 1557 1 0
Olepolos 62 62 0 0
Rabai Power 30 20 10 0
Rironi 108 109 0 0
Rungiri 214 212 2 0
Tuiyobei 150 150 0 0
Total 11,505 11,398 63 45
Note: The first two schemes listed in the table received two loans each, so the number of sub-projects is 35, but the
number of schemes is 33.
The types of connections referred to in the above table are defined as follows:
26
Total connections: This column represents the sum of all other connections in the table.
Household connections: These are connections—usually a standpipe – built within homesteads primarily for
domestic use, which may include productive uses of water such as kitchen gardens, livestock, etc.
Agricultural connections: One scheme, Mt. Kenya Buuri, laid pipes to plots primarily for irrigation;
households also used this water for domestic purposes.
Kiosks and standpipes: Both represent public water points where people can collect water, primarily for
domestic use.
A standpipe is simply a pipe with a tap.
A kiosk can be any one of a number of designs for a cement structure to protect the pipe holding the tap;
usually a kiosk will have at least two taps.
Institutional connections: These are any type of physical connection that was made to an institution, such as
a health center or school.
Source: ICR Team calculations based on Output Verification Reports for subprojects and Tertiary Consulting
Engineers, Ltd (2013, Appendices 3 and 4).
The above table is the source for the figures on final achievements reported on three Outcome Indicators in
the Results Framework Analysis.15 These figures are not completely accurate for the following reasons:
Inconsistent definitions of what constitutes an eligible connection: First, in some schemes
institutional connections were not counted; in other schemes, they were counted as kiosks. Second,
the Output Verification Reports (OVRs) indicate the sometimes “inactive” households connections
were counted, and sometimes not. For the sake of consistency, and because “inactive” was never
defined, both active and inactive household connections were included in the above table whenever
the OVRs reported the two figures. However, the OVRs did not systematically report these figures,
so undetected inconsistencies likely remain in the data.
Connections were only counted at the time of the output verification, rather than at the project
closing date: Connections were counted in order to calculate the subsidy payment to each scheme.
They had to be completed within six months of the end of construction. However, connections that
were subsequently added to the schemes before project closing (February 28, 2013) were also
project outputs, since these connections were made possible by the scheme capacity resulting from
the project. These post-verification connections were not captured in the above statistics, except for
those in the Kiamumbi scheme.
Appendix B.3: Loans
Table B.3: Achievements at the Successive Steps in Loan Process
Loan Process 2006-2010 2011-2013 Total
Expressions of Demand (Interest) Received 24 57 81
Expression of Demand Appraised
Positively 13 45 51
Loan Applications Received 13 35 48
Loan Applications Approved 32 45
15 See data sheet F.2: Intermediate Outcome Indicators, the final column (Actual Value Achieved at Completion) for
Indicators 2, 3, and 4.
27
Loan Offers Accepted 10 25 35
Value of Loans Disbursed (US$) 784,692 2,754,123 3,538,815
Value of Subsidies Disbursed (US$) 451,348 1,345,507 1,796,855
Average Per Capita Value of Subsidy (US$) 17.50 15.40 16.90
Source: K-Rep Bank (2013).
Appendix B.4: Consultant Services Component
The following table indicates that by the second phase of the project, there were three major firms that
served as PICs and support organizations. The PAC was the fourth major consulting firm working on the
project. Note that the figures in this table are not comparable with project cost figures elsewhere in the CR,
because the source used a different exchange rate.
Table B.4: Disbursements to Consultants for Support Services, 2011-2013
Loan Preparation and Implementation US$ Description of Services
RURAL FOCUS LTD 278,461 PIC and Support Organization
LUJO CONSULTING 121,700 PIC and Support Organization
ENG. MOGUCHE 112,106 PIC and Support Organization
WASDEV CONSULTANTS 29,138 PIC and Support Organization
FADHILI CONSULTANTS 8,554 PIC and Support Organization
JURASSIC CONSULTANTS 4,800 Support Organization
BATCH ASSOCIATES 4,643 Support Organization
DAVIS & SHIRTLIFF 2,376 Technical Assistance
Auditing Services
TERTIARY CONSULTING ENGINEERS
LTD 111,197 PAC
KIMANI AND ASSOCIATES 6,435
Miscellaneous Services
NATION MEDIA 869 Recruitment of Consultants
SAN VALENCIA 656 Support Organization Workshop
Note: US$ payments are taken directly from source table, and are not based on K Sh=US$ exchange rate used
elsewhere in this report. The table from which these figures are taken incorrectly shows the total as US$874,414. K-
Rep Bank report indicates two support organizations (Norken and Watersan) that are not included in the Tertiary
Consulting Engineers report. Conversely, the former report does mention the Davis and Shirtliff contract, which is
listed in the latter report.
Source: Tertiary Consulting Engineers Ltd., 2013, Appendix 3; K-Rep Bank 2013a, Appendices II and III.
28
Appendix C. Economic and Financial Analysis
Background
Maji ni Maisha Financing Product. The Maji ni Maisha is a financing product of the K-Rep Bank
Limited intended to provide loans to communities for water infrastructure where consumers are willing to
pay for clean and safe water. This product addresses a market gap: some communities are not eligible for
public grant funding because they are not situated in arid and semi-arid and flood prone areas, but they are
able to afford a modest level of demand for paid-for water supply. The main product features are
summarized below:
Table C.1: Maji ni Maisha Loan Features Loan Value K Sh 5 to 10 million
Borrower Legally registered community associations, self-help groups and trusts
Equity Requirement 20% of project cost in cash
Interest Charged Fixed at market rates, presently between 16% and 18% per annum
Maximum Loan Tenor Maximum 1 year grace period + 5 year term loan
Subsidy Up to 40% of eligible project costs based on the achievement of the pre-set
connection and revenue targets.
Financing Environment. Kenya experienced periods of volatile inflation during the five years of project
implementation (March 2007 to Feb 2013). In 2008, 2009 and again in 2012, inflation approached 20
percent, versus a historical average of eight percent. Over the same period, commercial bank interest rates
remained steady with base rates around 15 percent, except in 2012 when rates jumped to 20 percent. K-Rep
Bank signed a number of loans at this time, but kept their lending rate for Maji ni Maisha steady at 18
percent. Base rates have since gone back to around 17 percent in the first half of 2013. There are currently
30 active loans with between one-year and four-years repayment periods remaining.
Application and Credit Appraisal. Applications from communities were received at various branches of
K-Rep bank, many of which were referred through the respective water services board in charge of the
region. In total, the project considered over 65 proposals, out of which 35 subprojects were approved for
financing. The bank would usually evaluate the applicant entity’s organizational and leadership status, the
membership’s commitment to the project – especially their willingness to contribute cash equity, and the
likely feasibility of the project, which depended on access to a sustainable source of adequate water. Upon
assessment by the bank that the project has potential merit, it used project-provided resources to mobilize
support organizations (SOs) to assist the communities in developing the technical designs and financial
plans for the subprojects. Communities would share in the cost of preparation with a K Sh 10,000
contribution, or 10 percent of the preparation cost. During the preparation period, communities were
required to meet certain loan conditions. These included the mobilization of 20 percent equity contribution;
special service provider agreement granted by the water services board with concurrence of any existing
licensed service provider in the area; and a permit to extract water from the resources authority. K-Rep
Bank preferred a financial rate of return of higher than the interest rate hurdle (18 percent) and a debt-
service coverage ratio of 1.3.
Portfolio Profile
Investment Cost and Sharing. In total, the portfolio represents new investments in community water
worth US$4.2 million across 35 sub-projects. The number of people benefiting from improved services at
output verification stage totaled 190,119. The subprojects added approximately 115,000 people to the
baseline who gained access to improved water supply. Thus, counting only those people added through the
investment, the unit investment cost per capita is low, at US$48/person. Only 34 percent of the investment
29
capital was effectively sourced from public funding via the output subsidies ultimately mobilized under the
project. The majority of the finance came from community equity (35 percent) and financing from Maji ni
Maisha (31 percent). Under the project, communities mobilized US$1.70 million of cash to invest in their
own water supply and are poised to service debts in the community association’s name, making the project
predominantly privately financed (66 percent). Cash contributions mostly came from the community’s
savings, while a small portion (18 percent) came from a constituency development fund through Members
of Parliament.
Types of Investment. Investments were made to 18 green field projects and to the rehabilitation and
increasing capacity of existing networks. Works aimed to increase production capacity by rehabilitating
existing boreholes and dams as well as by establishing supplementary water sources, increasing the size of
the distribution network by as much as 14 kilometers of pipes, and augmenting network water storage to a
maximum of 500 cubic meters.
Achievement of Targets. Salient features of the 35 subprojects taken from the baseline and output
verification are found below, indicating significant positive changes.
Table C.2: Baseline and Endline Outcomes Changes Indicator Baseline Endline Change
Non-revenue water* 43% 40% 3%
Collection efficiency** na 88% na *Only 8 sub-projects are able to report on non-revenue water. ** Only 24 sub-projects were able to report on collection efficiency.
30
A large majority of subprojects met or exceeded their targets in water connections, while fewer than half
met their targets for kiosks and average monthly revenues. Kiosk targets were not met mainly due to
increased demand for individual connections. Estimation difficulties resulted in some financial targets not
being met. For example, given a 20 percent margin of error, about 75 percent of the subprojects would have
met or exceeded their revenue generation targets.
Table C.3: Outcome Achievement Rate against Targets
Indicator Total Target for 35 Sub-
Projects
% Sub-Project Meeting
or Exceeding Targets
Additional water connections 11,505 134%
Additional kiosks 62 NA
Total average monthly revenues (US$) 140,000 49%
31
Customer satisfaction regarding water supply and management.
Customer satisfaction levels were assessed via participants’ opinions on the continuity of supply, water
quality and the price of water across six project sites. There was a clear shift in opinion before and after the
project in terms of the taste and color of the water. Respondents in all six sites appreciated improved water
quality supplied under the project.
Respondents at five project sites felt that the continuity and reliability of supply attained a satisfactory level
after the implementation of the Maji ni Maisha project; however in Olepolos, a pre-existing project,
respondents rated continuity and reliability of supply as “average” because the project did not meet growing
demand.
Response was mixed regarding the question on connection fees. Beneficiaries in the three brownfield
projects (Olepolos, Hindi and Gitangu) were unsatisfied. Many participants, especially those who depended
on standpipes or intermittent water supply prior to the project, felt that the new connection fees were high.
In cases where the beneficiaries had not had access to piped water, respondents felt that the connection fees
charged were fair.
Feedback gathered from the FGD discussions indicates that beneficiaries ranked their management’s
performance highly. The management teams in five areas were comprised of community members elected
by beneficiaries as well as salaried personnel hired to support the daily operation and maintenance works in
the water supply system. The exception was Nyamasaria, where the local urban water utility manages the
subproject. The subproject experienced long periods without water due to the disconnection of the main
supply pipe to facilitate ongoing road works. Nevertheless, the community acknowledged the efforts made
by the utility to restore supply and ranked its performance favorably.
Financial assumptions and limitations. The financial review was conducted just one or two months after
the 35 subprojects had been commissioned. Therefore, assumptions based on the original factors assigned in
the business plans were used to project revenues and cost escalation. The annual rate for revenue increases
ranged from two percent to 14 percent, while cost escalation rates ranged from one percent to seven percent.
The beginning balances were taken from the average actual operating months of the subprojects, which in
most cases equaled two to three months of operation. A 10-year asset life was assumed.
Financial performance. The financial performance of the portfolio has been only moderately satisfactory.
All 35 subprojects are able to cover the cost of their operation and are likely able to generate enough cash to
cover debt payments throughout their loan life. However, under the current projection scenario, which is
based on only two months of operation, a number of subprojects need to raise revenues by increasing the
number of customers. The current financial projection scenario estimates a financial internal rate of return
of 18 percent for the total portfolio (taking subsidy payments into account). This is just at the point of the
hurdle rate, equivalent to K-Rep Bank’s lending rate. The portfolio, however, yields a negative net present
value of US$–50,000. The financial performance of the subprojects is summarized below:
Table C.4: Subproject Summary Financial Performance
Sub-Project Summary Financial Performance
IRR with
subsidy
IRR without
subsidy
Net Present
Value (US$)
Operating
Cost
Coverage
Loan Life
Debt Service
Coverage
Mean 24% 10% -1,400 2.17 1.97
Minimum -9% -19% -166,000 1.19 0.26
Maximum 159 76% 130,000 8.53 4.72
32
No. meeting 18% hurdle rate 15 13
No. with NPV or OCC > 1 14 35
No. with DSCR > 1.5 18
% of 35 meeting relevant
criteria
43% 37% 40% 100% 51%
Tariffs, consumption and affordability. The tariff rate in the 35 projects ranged from US$0.4 and US$1.8
per cubic meter. In some cases, a standing charge or a fee was also collected each month. Projects
implemented and managed by the water utilities on behalf of communities had lower tariffs than those
managed by communities themselves.
Information collected from focus group discussions in six project sites indicates that effective tariffs from
piped connections averaged US$0.05 per liter, ranging from US$0.01 to US$0.07 per liter. Effective tariffs
at water kiosk averaged US$0.04 per liter. Households with piped connections reported spending an
average of US$18 per month; the average monthly spending ranging from US$10.60 in Gitangu and
US$23.88 in Nyamasaria. Consumption averaged 3.85 liters per capita per day, with ranges from 1 lpcd in
Gitangu to 6 lpcd in Nyamasaria. Households collecting water from kiosks reported spending between
US$8 and US$9 per month for a consumption of a just over 1 lpcd.
In Koibatek, Hindi and Nyamasaria reported spending a significant portion of monthly household income
on water, at 20 percent, 10 percent and 9 percent, respectively. In the remaining areas, water bills cost four
percent to five percent of monthly household income. Despite the large portion of monthly household
income spent on water, FGDs in Koibatek, Hindi and Nyamasaria were either neutral or satisfied with the
monthly bills. There were no piped water supply in Koibatek and Nyamasaria before the project, so the
level of satisfaction may represent the value the households perceive from the new source. Households in
Olepolos expressed the greatest dissatisfaction with the level of their monthly water bills, which is ironic
given that Olepolos households enjoy the highest income among the six sites (US$446). However, it should
be noted that the standing fee charged in Olepolos (K Sh 500) is more expensive than other vended water.
Households were also generally neutral or satisfied with the level of connection fee charged. Connection
charge ranged from US$24 in Nyamasaria to US$282 in Olepolos. There was greater dissatisfaction
regarding the connection fees in Hindi and Olepolos, where fees were the highest.
Loan financing arrangement. The project had two prominent financing features: a loan and an output-
based subsidy. The efficiency of the subsidy is justified under the project, as discussed in more detail in the
next section. This section looks at the appropriate use of commercial financing in the project. A simulation
of the financial performance of 35 projects using a “no loan” scenario resulted in 20 out of 35 improving
their financial rates of return. This improvement enabled four subprojects to meet the hurdle rate of 18
percent. (Under a “with loan” scenario, 15 sub-projects are able to generate an IRR of 18 percent and above,
while in a “no-loan” scenario, 19 of them can generate an IRR of at least 18 percent..) However, in the case
where loans are not used, the hurdle rate needs to be adjusted to reflect the higher cost of equity as capital.
In this case, we use the assumption of 35 percent. Under this scenario, fewer subprojects (12) would meet
the appropriate hurdle rate compared to a “with loan” scenario (15). These communities are not likely to be
eligible for other funding, since government programs prioritize areas in arid and semi-arid or flood-prone
regions. Thus, evidence suggests that the use of commercial lending as leverage for the modest ability of the
beneficiary communities to mobilize equity was well justified.
The FGDs suggested that community members in all six of the project areas are willing to replicate the
financing model in other projects that address community challenges, such as in agricultural projects, power
supply projects and for sanitation facilities.
33
Economic Analysis Background
Focus Group Discussions. The economic analysis was conducted based on information collected in focus
group discussions (FGDs) conducted in six subproject areas. These areas were selected to represent the
geophysical conditions of all the 35 subprojects:
Coastal (1)
Humid Urban (2)
Humid Rural (3)
Officials involved in the community water projects identified households to include in the FGDs.
Respondents were divided into three groups: Group 1 comprised women, Group 2 comprised men and
Group 3 comprised a mix of women and men. A total of 177 respondents participated in the FGDs, with 66
percent male and 33 percent female. The table below provides additional details.
Table C.5: Distribution of FGD Participants
Area Group 1 Group 2 Group 3
Hindi 10 8 8
Koibatek 12 12 9
Kiptere 10 12 17
Nyamasaria 12 10 15
Olepolos 15 12 0
Gitangu 8 7 0
Total 67 61 49
The FGDs primarily focused on collecting and comparing information on residents’ water supply collection
and consumption practices. They also focused on households’ health situation before and after the
introduction of the piped water supply project. The FGD also asked residents to rate the performance of the
water system and its management, which was discussed in the previous section.
Assumptions. Subprojects had been commissioned only two months before this economic review was
conducted. Therefore, this economic analysis assumes that the number of people with access to the system
at the time of verification would increase according to the rates given in the business plan projections. The
sample mean from the FGD respondents was assumed to represent the mean of the population presently
with access to the system and was used to project the benefits for the population universe.
The aspects included in the economic analysis are summarized in the table below:
Table C.6: Assumptions of Economic Analysis
Aspect Benefits Considered Basis/Assumptions
1. Health a. Avoided treatment cost of
children under age 5
a. Reduction in # of diarrheal cases reported
before and after the project
b. Diarrheal disease exposure rate per WHO
(0.61)16 based on FGD responses that prior to
16 WHO Exposure Scenario for improved water supply and improved sanitation in a country that is not extensively
covered by those services, and where water supply is not routinely controlled. This scenario is given a corresponding
risk of exposure of this value. This allows for estimating health benefits from improving water and sanitation for
populations that start on different points on their WSS levels of services.
34
Aspect Benefits Considered Basis/Assumptions
the project, most household had improved
sources of water such as boreholes
c. Unit cost per treatment based on reporting by
FGD participants
b. Productive days gained a. Reduction in # of diarrheal cases reported
before and after the project
b. Days off work per case resulting in missed
working time per working adult
c. Adult working population estimated from
FGD reports
d. Opportunity cost based on income per
working adult
2. Income a. Productive use of time for
fetching and waiting
a. Time for fetching
b. Opportunity cost based on 50% of income of
working adult (as fetchers are mostly children
and non-working adults)
b. Reduced/avoided cost of
water services
a. Comparison of cost of paid-for water before
and after the project
Economic Analysis Results. Despite the portfolio’s weak financial performance, the project confirms that
investments in water produce significant positive economic returns. In the six subprojects analyzed, the
economic internal rate of return ranged from 64% in Hindi to as high as 392% in Nyamasaria. Every dollar
(US$1) invested in water yielded benefits of between US$2 to US$10. The economic internal rate of return
results for the six subprojects are summarized in table C.7 below:
Table C.7: Summary Results of Economic Analysis
Hindi Koibatek Kiptere Nyamasaria Olepolos Gitangu
Economic Internal
Rate of Return 64% 261% 161% 392% 72% 182%
Economic Net
Present Value (US$) 715,000 1,115,000 1,285,000 5,124,000 1,945,000 608,000
Cost of Investment
from Project (US$) 112,000 200,000 166,000 341,000 119,000 39,000
Cost of Household
Investment (US$) 241,000 47,000 136,000 157,000 684,000 29,000
Total Cost of
Investment (US$) 353,000 247,000 302,000 499,000 803,000 68,000
Benefit-Cost Ratio 2.0 4.5 4.3 10.3 2.4 9.0
Health Benefits. Exposure to diarrhea-causing agents is frequently related to the use of contaminated water
and to unhygienic practices in food preparation and disposal of excreta. In the six subproject areas, families
with children under the age of five (CU5) reported between 12 and 14 incidences of diarrhea per year prior
to the project. This dropped to an average of four incidences per year after the project. A portion of this
(based on the WHO Exposure Scenario) was attributed to water. This benefit commonly comprised 12
percent to 64 percent of net inflows of total.
35
FGDs indicated that the project’s health benefits resulted in greater productivity. FGD participants reported
24 incidence of diarrhea per year on average, causing them to miss work about five to six of those days.
After the project, the average annual incidence of diarrhea decline to 11 for five of the subprojects. In
Hindi, FGD participants reported an average of 12.9 cases of diarrhea per year prior to the project, and
about one case per year after. This benefit comprised less than one percent of total benefits flows.
Income Benefits. Besides Olepolos, where a few households already had a piped connection to the existing
water system, most FGD respondents relied on hand dug wells, boreholes, river and rainwater harvesting as
water sources before the project. They carried water through various modes of transport, including hand
carrying, bicycle and donkey, traveling an average distance of 1.6 kilometers (with distances ranging from
20 meters to seven kilometers). Women and children overwhelmingly comprised water collectors. The
benefit inflows from time saved in water collection after the project ranged between 42 percent and 89
percent of the total flows.
Communities had different experiences on whether they benefited from avoided costs of paying for
alternative sources. Out of the 176 households that participated in the FGDs, 139 typically took water from
distant but free sources so that they did not pay for water prior to the project. Thirty-seven households paid
less for their previous source than what is currently charged under the subproject. This results in negative
net flows of US$65,000. Thus, in all but one case did this benefit result in a positive portion of total
economic benefits.
Economic Activities. In addition to the benefits quantified in the economic analysis, the FGDs also
revealed that a number of households were able to increase incomes due to the availability of water supply.
For example, households reported generating supplementary income by selling agricultural products
derived from increased activity in animal husbandry and vegetable farming, for example. Individual
families and local primary schools also reported making longer-term investments in tree nurseries and fish
farming, facilitated by the availability of water.
Subsidies. The strong economic performance of the subprojects, yielding US$2 to US$10 for every dollar
invested, demonstrates the development cost-effectiveness of the investment, including the subsidy. The
efficiency and incidence of the subsidy is discussed below.
Efficiency. No willingness-to-connect data were available from the project. However, feedback from FGDs
indicate that connection fees in three out of the six project sites were found by residents to be “prohibitive”
or “unsatisfactory” whereas residents in the other three sites found their fees “satisfactory.” The upper
bound of fees in those sites where residents were satisfied with the amount is K Sh 2,500 or US$30 per
connection. We use this as a proxy for what households would have been willing to pay to connect to the
network. The effective subsidy per person is US$16.60, and using the average of six households per
connection, each household benefiting from the project received an effective subsidy of US$100. On the
other hand, the actual cost of the project investment is US$290 per household. If households perceive
private utility to be US$30 per connection (their WTP), this leaves a gap of US$160. The fact that the
US$100 subsidy is much lower than the gap between what households can afford and the actual cost of
investments suggests that the subsidy was efficient.
Incidence of subsidy. Five of the selected sites are located in rural areas; only Olepolos is situated in an
urban setting. Adjusting the 2005 rural and urban national poverty line17 to 2012 prices, the portion of
people represented in the focus group that fell below the poverty line was calculated. In the six areas where
17 Kenya Integrated Household Survey (2005). The national poverty line for 2012 is estimated at K Sh 3,048 per
person per month in the rural areas and K Sh 5,684 in the urban area.
36
FGDs were conducted, between 33 percent and 78 percent of respondents fell below the poverty line, with a
weighted average of 58 percent.
Access to the poor
Project
Name
Total
respondents
Number of people below
poverty line
%
Representation
Hindi 27 21 78%
Koibatek 33 25 76%
Kiptere 39 22 56%
Nyamasaria 36 14 39%
Olepolos 27 17 63%
Gitangu 15 5 33%
Total 177 104
37
Appendix D. Beneficiary Survey Results
None (optional for a Core CR)
Appendix E. Beneficiary Survey Results
None (optional for a Core CR)
Appendix F. Summary of Grantee's CR and/or Comments on Draft CR
None
Appendix G. Comments of Cofinanciers and Other Partners/Stakeholders
None
Appendix H. List of Supporting Documents
Advani, R. (2011). “Financing Small Piped Water Systems in Rural and Peri-Urban Kenya.” Water and
Sanitation Program. Nairobi, Kenya.
Bruce, C. (2007). Re: Global Partnership on Output-based Aid, Kenya: Microfinance for Community-
Managed Water Projects, Grant Amendment (Grant Numbers - TF057614, TF057614, and TF057616).
Filed with World Bank. Washington, D.C.
Concessional Finance and Global Partnerships (2013). Trust Fund Handbook: Digital Edition.
http://www.cfpto.org/TFHandbook/index.htm.
EU (2007). Trust Fund Administration Agreement concerning the Global Partnership for Output Based Aid
Project "Microfinance for Community Managed Water Projects" in Kenya, TF070963 between The
European Community represented by the Commissioner of the European Communities and International
Bank for Reconstruction and Development and International Development Association. Filed with World
Bank. Washington, D.C.
GPOBA (2006). Microfinance for Community-Managed Water Projects: An Output Based Aid Pilot Project
in Kenya: Eligibility Note. World Bank. Washington, D.C.
GPOBA (2006b). Minutes from the Meeting with the Panel of Experts, April 11, 2006. World Bank.
Washington D.C.
GPOBA (2007). Micro-Finance for Small Piped Water Schemes - Kenya. Semi-Annual Status Report,
GPOBA. World Bank. Washington, D.C.
GPOBA (2009). Micro-Finance for Small Piped Water Schemes - Kenya. Semi-Annual Status Report,
GPOBA. World Bank. Washington, D.C.
GPOBA (2010). Micro-Finance for Small Piped Water Schemes - Kenya. Semi-Annual Status Report,
GPOBA. World Bank. Washington, D.C.
GPOBA (2013). “Summary of Sources and Uses of Funds, 2nd Quarter ending 30th June 2013.” Mimeo
provided by GPOBA. World Bank. Washington, D.C.
38
IDA (2006). Global Partnership on Output-based Aid Grant Agreement (Kenya - Microfinance for
Community-Managed Water Projects) between K-Rep Bank Limited and International Development
Association Acting as Administrator of the Global Partnership on Output-based Aid. Filed with The World
Bank, International Development Association.
Kimani and Associates (2012). K-Rep Audit Report for the Period 1 July 2010 to 30 June 2012.
K-Rep Bank (2006). Kenya Microfinance for Water Services Project Operations Manual (draft). Nairobi.
K-Rep Bank (2012). Kenya Microfinance for Community-Managed Water Project P104075: First
Addendum to the Operations Manual. Nairobi.
K-Rep Bank (2013a). Semi-Annual Status Report Dated 2013.
K-Rep Bank (2013b). Final Project Completion Report.
Mehta, M. and K. Virjee (2003). “Financing Small Water Supply and Sanitation Service Providers:
Exploring the Microfinance Option in Sub-Saharan Africa.” Water and Sanitation Program. Nairobi, Kenya.
Mehta, M. and K. Virjee (2007). “Microfinance for Rural Piped Water Services in Kenya: Using an Output-
Based Aid Approach for Leveraging and Increasing Sustainability.” Water and Sanitation Program. Nairobi,
Kenya.
Njonjo, A. and J. Lane (2002). “Rural Piped Water Supplies in Ethiopia, Malawi, and Kenya: Community
Management and Sustainability.” Water and Sanitation Program. Nairobi, Kenya.
Tertiary Consulting Engineers Ltd. (2013). Project Audit Consultancy to Evaluate the Performance of
Borrowers under the Kenya Microfinance for Community Water Projects (draft). Nairobi, Kenya.
World Bank (2004). Memorandum of the President of the International Development Association and the
International Finance Corporation to the Executive Directors on a Country Assistance Strategy for the
Republic of Kenya. Washington, D.C.
World Bank (2009a). Aide Memoire: Microfinance for Water Projects First Supervision Mission.
Washington, D.C.
World Bank (2009b). Aide Memoire: Kenya Microfinance for Water Projects (P104075) Second
Supervision Mission. Washington, D.C.
World Bank (2010). “The International Development Associations, The International Finance Corporation,
and The Multilateral Investment Guarantee Agency Country Partnership Strategy for The Republic of
Kenya for the Period FY2010-2013.” Washington D.C.
World Bank (2011). “Restructuring Paper on a Proposed Project Restructuring of Kenya-Micro Finance for
Community Managed Water Project (Trust Fund Grant Numbers 057614, 057615, 057616 Dated December
6, 2006, and Trust Fund Grant Number 093392 Dated June 17, 2010, to the K-Rep Bank Ltd.).”
Washington D.C.
WSP, GPOBA, et al. (2011). Aide Memoire: Kenya Implementation Support Mission for the Microfinance
for Community Managed Water Project, (Grant Numbers - TF057614, TF057615, TF057616 and
TF093392), (March 14 to March 25, 2011).” World Bank. Washington D.C.
39
Wormser, M. (2008). Kenya: Microfinance for Community Managed Water Projects (Grant Numbers:
TF057614, TF057615 and TF057616) Amendment of Grant Agreement. World Bank. Washington D.C.
Zutt, J. (2010). Kenya: Microfinance for Community Managed Water Project (Grant Number-TF057614,
TF057615, TF057616 and TF093392) Amendment of Grant Agreement. World Bank. Washington D.C.
Zutt, J. (2011). Kenya Microfinance for Community Managed Water Project (Grant Number- TF 057614,
TF 057615, TF057616 and TF 093392), Notice of Extension of Closing Date. World Bank/IFC/M.I.G.A.
Office Memorandum. Washington D.C.
40
Appendix I. Additional Notes on the Selection and Measurement of PDO and Intermediate
Outcome Indicators
Indicators for the PDO and Intermediate Outcomes are a key input into an CR. Most significantly, the
achieved values relative to target values on these indicators influence significantly the assessment ratings
for project outcomes.
Usually these indicators and the original target values are taken from the Results Framework in the project
PAD, and entered into the Operations Portal at project start-up. A formal restructuring of the project may
lead to formally revised target values, but the original target and baseline values are also reported in the CR
data sheet F: Results Framework Analysis. The CR Team completes the provided table by filling in the
achieved targets plus comments.
However, this project did not have a PAD, because at the time of project approval, PADs were not required
for small recipient-executed trust funds such as this one.
The CR team reviewed project documents in an effort to determine which indicators and values best
represent the thinking at project start-up about how to measure results with respect to the project objective
and intermediate outcomes. These documents comprised the GPOBA Eligibility Note, Project Operations
Manual, original grant agreements, and the formally approved restructuring paper.
This task has proved challenging. The various original project documents do not consistently state the same
set of indicators. Furthermore, there are often no target values given. On the other hand, the restructuring
paper lists three performance indicators, and these must be included among the selected indicators. There is
also a general consensus in the original documents regarding the expected results from the project, with the
exception of the 2007 EU Agreement. This consensus suggests three additional indicators. Therefore, six
indicators were selected, as described in Appendix J, table J.1 below:
Table J.1: Rationale for Selecting the PDO and Five Intermediate Outcome Indicators
Ref Indicator Rationale for Selection
PDO Number of people with access to water under the
Project
Given in Project Restructuring Paper
(World Bank 2011).
1 Number of community subprojects accessing
finance under the Project
Given in Project Restructuring Paper
(World Bank 2011)
2 Number of new working connections Given in Project Restructuring Paper
(World Bank 2011)
3 Number of new individual household connections
at agreed working conditions and service standards
Given in the Eligibility Note and
Operations Manual (GPOBA 2006, pg. 11;
K-Rep 2006, pgs. 4, 6-7)
4 Number of [new] kiosk facilities at agreed working
conditions and service standards
Given in the Eligibility Note and
Operations Manual (GPOBA 2006, pg. 11;
K-Rep 2006, pgs. 4, 6-7).
41
Ref Indicator Rationale for Selection
5
Number of existing projects with an increase in
gross revenue; measured as the average monthly
revenue collected from water sales over two
months after project commissioning
Given in the Eligibility Note and
Operations Manual (GPOBA 2006, pg. 11;
K-Rep 2006, pgs. 4, 6-7).
Note that the PDO Indicator, “Number of people with access to water under the Project,” measures both
people who gained access to water, and people who already had access to water from existing scheme
connections and kiosks. The project, as stated in the PDO, aimed not only to expand coverage but also to
improve the efficiency of water services, to both existing and new consumers.
Appendix J, Table 2 shows how the number of beneficiaries was calculated, based on the estimated number
of household, agricultural connections used for domestic purposes, and kiosks and communal standpipes.
People served through institutional connections were not counted, partly because this would result in
significant double counting,18 and partly because there was no information available to estimate the number
of people served in this way.
18 Many of the people served through institutional connections would also be served through household or kiosk
connections.
42
Table J.2: Calculation of Beneficiaries Based on Number and Type of Connections
Columns A B C D E F G= A*E H=A*E I=C*F J= G+H+I
Subprojects
Total Number of Connections Socio-economic data Total Number of Beneficiaries
Household Agricultural Kiosks and Standpipes
Institutional Average
Household Size
Persons per
Kiosk Household Agricultural
Kiosks and Standpipes
Total
Kiamumbi I and II
760 0 0 0 6 4560 0 0 4560
Kamirithu I and II
855 0 5 0 6 150 5130 0 750 5880
Amani Drive 143 0 4 0 6 160 858 0 640 1498
Fortsmith 122 0 3 1 6 125 732 0 375 1107
Gatangu 191 0 4 0 6 250 1146 0 1000 2146
Gitaru 721 0 0 0 20 0 14420 0 0 14420
Hindi Magogoni 266 0 29 0 5 110 1330 0 3190 4520
Kamandura 263 0 0 0 5 250 1315 0 0 1315
Kamureito 440 0 4 11 6 200 2640 0 800 3440
Kamweli VDC 159 0 4 0 6 100 954 0 400 1354
Kanunga 792 0 4 0 6 80 4752 0 320 5072
Karanjee 400 0 2 0 5 250 2000 0 500 2500
Karweti 715 0 0 0 6 0 4290 0 0 4290
Kayole Soweto 1607 0 0 0 40 0 64280 0 0 64280
Kenol Kabati 1400 0 0 0 6 80 8400 0 0 8400
Kiambi Network 544 0 10 0 5 200 2720 0 2000 4720
Kiarutara Ragia 910 0 0 0 6 80 5460 0 0 5460
Kinoo 442 0 1 0 15 250 6630 0 250 6880
43
Columns A B C D E F G= A*E H=A*E I=C*F J= G+H+I
Subprojects
Total Number of Connections Socio-economic data Total Number of Beneficiaries
Household Agricultural Kiosks and Standpipes
Institutional Average
Household Size
Persons per
Kiosk Household Agricultural
Kiosks and Standpipes
Total
Kiptere 369 0 4 19 6 200 2214 0 800 3014
Koibatek 520 0 2 8 6 100 3120 0 200 3320
Masogo 172 0 5 6 6 250 1032 0 1250 2282
Mataara 555 0 0 0 5 0 2775 0 0 2775
Mt. Kenya Buuri 0 231 3 0 6 250 0 1386 750 2136
Mukangu 1034 0 0 0 6 0 6204 0 0 6204
Ng’ondu 237 0 1 0 6 80 1422 0 80 1502
Ngecherok 41 0 2 0 6 100 246 0 200 446
Ngeteti 282 0 0 0 6 80 1692 0 0 1692
Nyamasaria 1557 0 1 0 5 250 7785 0 250 8035
Olepolos 683 0 2 0 8 250 5464 0 500 5964
Rabai Power 20 0 10 0 6 250 120 0 2500 2620
Rironi 789 0 4 0 5 250 3945 0 1000 4945
Rungiri 212 0 2 0 6 250 1272 0 500 1772
Tuiyobei 314 0 0 0 5 250 1570 0 0 1570
Totals 17,515 106 231 45 170,478 1,386 18,255 190,119
44
Appendix K. Summary of Project Agreements and Amendments
Date Purpose Reference
April 3, 2006 Draft Eligibility Note for project GPOBA 2006
December 6, 2006 Grant agreement between IDA, IFC (TF057614),
and DFID (TF057615) to fund project IDA 2006
December 12, 2006 Grant agreement between IDA and the Netherlands
(TF057616) to fund project
March 5, 2007 Project effectiveness date
June 18, 2007
Grant agreement amendment to apportion project
funding equally among the three donors (TF057614-
IFC, TF057615-DFID, and TF057616-NETH)
Bruce 2007
December 28, 2007 Administrative Agreement between EU and
IBRD/IDA for TF070963 project funding EU 2007
December 18, 2008
Grant agreement amendment to extend closing date
to June 30, 2010 and extend project area to “a larger
geographic area”
Wormser 2008
December 31, 2008 Original closing date IDA 2006
June 17, 2010
Grant agreement amendment to extend closing date
to June 30, 2011 and to incorporate EU funding from
2007 (now called TF093392). Small reduction in
amount of EU financing.
Zutt 2010
June 22, 2011
Restructuring proposal to extend closing date to
February 28, 2013, and to set new target values for
certain indicators
World Bank
2011
June 29, 2011 Grant agreement amendment to extend closing date
to February 28, 2013 Zutt 2011
45
Appendix L. Breakdown of Original and Revised Financing Figures Presented in Data Sheet
A: Basic Information
Normally the information in Data Sheet A would be generated by the Operations Portal system.
However RETF Trust Grants with concept notes approved prior to March 31, 2012 were only
required to have ICRs and Implementation Supervision Reports if they were stand-alone projects
above US$5million (RE Product Line - Large).19 Since this project fell into the category of
recipient-executed trust funded projects for which ICRs were not required, the Operations Portal
did not create an CR template with all the attendant data sheets.
Therefore, the CR Team manually constructed Data Sheet A, based on the following information.
Table L.1: Original Financing: Details of Figures Presented in Data Sheet A: Basic
Information
Trust Fund Donors Date Signed Original US$
TF057614 IFC December 6, 2006 575,650
TF057615 DFID December 6, 2006 575,650
Total 1,151,300
Note: The € 1,520,570 which the EU made available to the project through TF070963 from December 28, 2007, was
not incorporated into the amended grant agreement until June 17, 2010 as TF093392. See also Tables B and C below
and Appendix X.
Sources: IDA 2006, EU 2007. See Appendix K for a guide on which source provided which figures.
19 See Concessional Finance and Global Partnerships. 2013, Trust Fund Handbook: Digital Edition. Originally
published December 4, 2008. Updated July 2013, Section 5.3, Footnote 4
(http://www.cfpto.org/TFHandbook/index.htm)
46
Table L.2: Details of Revised Financing (Original Grants) Presented in Data Sheet A: Basic
Information
Trust
Fund Donors Date Signed
Original Grant US$
(Revised June 2010)
Original Grant
€
(Revised June 2010)
TF057614 IFC December 6, 2006 383,767 --
TF057615 DFID December 6, 2006 383,766 --
TF057616 Netherlands December 12, 2006
(June 18, 2007#) 383,767 --
TF093392 EU June 17, 2010 Equivalent
US$1,837,227* 1,400,539
Approximate Total
in US$(US$1.31 =
€1.00)*: US$2,988,528*
# Project agreement amended June 18, 2007 to include the Netherlands TF (World Bank 2011). See Appendix K.
* CR Guidelines specify that the exchange rate should be the one on the project’s closing date, in this case February
28, 2013. The Client Connection>World Bank Currency Converter was used to determine this rate.
Sources: Bruce 2007, EU 2007, Zutt 2010. See Appendix K for a guide as to which source provided which figures.
Table L.3: Financing Not Included in Data Sheet A: Basic Information
Trust
Fund Donors Date Signed Original US$ Original €
TF070963 EU December 28, 2007# 1,520,570#
PPIAF SNTA 523,000
U.S. Development
Credit Authority February 18, 2008 5,000,000
# The grant agreement was not amended to include EU financing until June 17, 2010. At that time, a lesser amount
was included (see Table B above). Therefore, it has not been entered in the Data Sheet A. Basic Information. However
this additional funding had a profound effect on the project, enabling it to scale up from five districts (covered by the
Athi Water Sector Board) to all districts, and to increase the number of projects. The change in geographic scale and
the EU funding were incorporated in the project agreement as amended on December 18, 2008 (World Bank 2011).
See Appendix I for a timeline of project amendments.
Sources: EU 2007; GPOBA 2010
47
Table L.4: Partial Summary of Donor Final Disbursements
Table does not include WSP and IDA financing.
Trust Fund Donors Date Signed Final Disbursement
(US$)
TF057614 IFC December 6, 2006 383,767
TF057615 DFID December 6, 2006 383,766
TF057616 Netherlands December 12, 2006
(June 18, 2007)# 383,767
TF070963 EU December 28, 2007
TF093392 EU June 14, 2010 1,455,183
PPIAF Sub-National
Technical Assistance Not available 350,000
USAID Development
Credit Authority February 18, 2008 Not available
# The grant agreement was not amended to include EU financing until June 17, 2010. At that time, a lesser amount
was included (see Table B above).
Source for Final Disbursements: The final Financial Management Report submitted for K-Rep Bank. The amount
of the EU grant is the reported disbursement (US$1,499,930) minus US$44,747 that K-Rep Bank is expected to
reimburse. The PPIAF final disbursement figure comes from personal communication with Rajesh Advani, former
TTL, August 2013.