Document of The World Bank

[Pages:96]Public Disclosure Authorized

Public Disclosure Authorized

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: PAD2082

INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 55.4 MILLION (US$75 MILLION EQUIVALENT) TO THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A

SRI LANKA FINANCIAL SECTOR MODERNIZATION PROJECT March 14, 2017

Finance and Markets Global Practice South Asia Region

Public Disclosure Authorized

Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective February 28, 2017)

Currency Unit = Sri Lanka Rupee (LKR) LKR 151.624964 = US$1

US$ 1.353890 = SDR 1

FISCAL YEAR January 1 - December 31

ADB AGDSL BCP CBSL CCP CDS CPCU CPF CSD CSE DA DLI DLR DMS DvP EEP EPF ERD FA FCP FIRST FM FMI FSAP FSOC GDP GFDR GoSL GRM GRS IBSL IMF IOSCO IPF IRR IT IUFR M&E MCR MFI MIC MoF

ABBREVIATIONS AND ACRONYMS

Asian Development Bank Auditor General's Department of Sri Lanka Business Continuity Planning Central Bank of Sri Lanka Central Counterparty Central Depository System Central Project Coordination Unit Country Partnership Framework Central Securities Depository Colombo Stock Exchange Designated Account Disbursement-linked Indicator Disbursement-linked Result Debt Management Strategy Delivery-versus-Payment Eligible Expenditure Program Employees' Provident Fund Department of External Resources Financing Agreement Financial Consumer Protection Financial Sector Reform and Strengthening Initiative Financial Management Financial Market Infrastructure Financial Sector Assessment Program Financial Sector Oversight Committee Gross Domestic Product Global Financial Development Report Government of Sri Lanka Grievance Redress Mechanism Grievance Redress Service Insurance Board of Sri Lanka International Monetary Fund International Organization of Securities Commission Investment Project Financing Internal Rate of Return Information Technology Interim Unaudited Financial Report Monitoring and Evaluation Minimum Capital Requirement Microfinance Institution Middle-Income Country Ministry of Finance

MoNP&EA MoU MSME NBFI NCB NCS NITF NPV OM PDO PFMI PSC RBS RTGS SEC SOCB SOE SOFI SORT SSS SSSS TA

Ministry of National Policies and Economic Affairs Memorandum of Understanding Micro, Small, and Medium Enterprise Non-Bank Financial Institution National Competitive Bidding National Card Scheme National Insurance Trust Fund Net Present Value Operations Manual Project Development Objective Principles of Financial Markets Infrastructure Project Steering Committee Risk-based Supervision Real-Time Gross Settlement Securities and Exchange Commission of Sri Lanka State-owned Commercial Bank State-owned Enterprise State-owned Financial Institution Systematic Operations Risk-Rating Tool Securities Settlement System Scripless Securities Settlement System Technical Assistance

Regional Vice President: Annette Dixon Country Director: Idah Z. Pswarayi-Riddihough

Senior Global Practice Director: Ceyla Pazarbasioglu-Dutz Practice Manager: Niraj Verma

Task Team Leader(s): Anoma Kulathunga, Martin Melecky

The World Bank

Sri Lanka Financial Sector Modernization Project (P159303)

BASIC INFORMATION

Is this a regionally tagged project? Country(ies) No

[ ] Situations of Urgent Need of Assistance or Capacity Constraints [ ] Financial Intermediaries [ ] Series of Projects

Lending Instrument Investment Project Financing

Approval Date 05-Apr-2017

Bank/IFC Collaboration No

Closing Date 31-Dec-2022

Environmental Assessment Category C - Not Required

Proposed Development Objective(s)

The Project Development Objective (PDO) is "to contribute to increasing financial market efficiency and use of financial services among micro, small and medium enterprises (MSMEs) and individuals".

The project will achieve the PDO through modernizing financial market infrastructure, upgrading the legal and regulatory framework for the financial system, and strengthening the institutional capacity of financial sector regulators (Central Bank of Sri Lanka, [CBSL]; Securities and Exchange Commission of Sri Lanka, [SEC]; and Insurance Board of Sri Lanka, [IBSL]). On account of its comprehensive approach to creating an enabling environment for robust financial development, the project is also expected to advance financial inclusion through (a) increased financial efficiency and competition and (b) the greater reach and financial connectivity of MSMEs and individuals that the new and more inclusive financial market infrastructure shall enable.

Components

Component Name

Supporting Selected Mid-Level Reforms through Results-Based Financing

Strengthening Regulators' Institutional Capacity, Upgrading the Legal and Regulatory Framework and Modernizing Financial Market Infrastructure

Cost (US$, millions) 15.00 59.00

The World Bank

Sri Lanka Financial Sector Modernization Project (P159303)

Project Implementation and Monitoring

0.81

Front-end Fee

0.19

Organizations Borrower : Implementing Agency :

Democratic Socialist Republic of Sri Lanka

Insurance Board of Sri Lanka Securities and Exchange Commission of Sri Lanka Central Bank of Sri Lanka

[ ] Counterpart Funding

[ ] IBRD [ ] IDA Credit

[ ] Crisis Response Window

[ ] IDA Grant

[ ] Crisis Response Window

[ ] Trust Funds

[ ] Regional Projects Window

[ ] Regional Projects Window

Total Project Cost:

Total Financing:

Financing Gap:

75.00

75.00

0.00

Of Which Bank Financing (IBRD/IDA):

75.00

[ ] Parallel Financing

Financing (in US$, millions)

Financing Source IDA-60060 Total Expected Disbursements (in US$, millions)

Amount

75.00 75.00

The World Bank

Sri Lanka Financial Sector Modernization Project (P159303)

Fiscal Year Annual Cumulative

2017 0.29 0.29

2018 4.15 4.45

2019 6.41 10.85

2020 10.62 21.47

2021 19.17 40.64

2022 24.52 65.16

2023 9.84 75.00

INSTITUTIONAL DATA

Practice Area (Lead) Finance & Markets Contributing Practice Areas

Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks

Gender Tag

Does the project plan to undertake any of the following?

a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes

b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment No

c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category 1. Political and Governance 2. Macroeconomic 3. Sector Strategies and Policies

Rating Substantial Substantial Substantial

The World Bank

Sri Lanka Financial Sector Modernization Project (P159303)

4. Technical Design of Project or Program 5. Institutional Capacity for Implementation and Sustainability 6. Fiduciary 7. Environment and Social 8. Stakeholders 9. Other 10. Overall

Moderate Substantial Substantial Low Moderate

Substantial

COMPLIANCE

Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [] No

Does the project require any waivers of Bank policies? [ ] Yes [] No

Safeguard Policies Triggered by the Project

Environmental Assessment OP/BP 4.01 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60

Legal Covenants

Sections and Description Project Steering Committee :

Yes

No

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