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Document of
The World Bank
Report No: 20917 AFR
PROJECT APPRAISAL DOCUMENT
ONA
PROPOSED CREDIT
IN THE AMOUNT OF SDR 7.2 MILLION(US$9.4 MILLION EQUIVALENT)
TO THE
BANQUE CENTRALE DES ETATS DE L'AFRIQUE DE L'OUEST
FORA
BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
September 26, 2000
Finance GroupAfrica Regional Office
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CURRENCY EQUIVALENTS
(Exchange Rate Effective August 31, 2000)
Currency Unit = CFA francCFAF I = US$.00137
US$1 = CFAF 729
FISCAL YEARJanuary to December
ABBREVIATIONS AND ACRONYMSAFD Agence FranSaise de DeveloppementATM Automated Teller MachineBCEAO Banque Centrale des Etats de l'Afrique de l'OuestBEAC Banque des Etats de l'Afrique CentraleBIS Bank of International SettlementsCCP Comites Consultatifs des PaiementsCIDA Canadian International Development AgencyCMR Centre Monftique R6gionalCOMPENS Low-value clearing systemECOWAS Economic Community of West African StatesICB International Competitive BiddingIDA International Development AssociationIMF International Monetary FundMONETIQUE Interbank card systemMRSMP Mission pour la Riforme des Systemes et Moyens de PaiementOHADA Organization for the Harmonization of African Business LawPOS Point of SalePPF Project Preparation FacilityRSE Regional Stock ExchangeRTGS Real Time Gross SettlementSME Small and Medium EnterpriseVSAT Very Small Aperture TerminalWAEMU West African Economic and Monetary UnionWAMU West African Monetary Union
Vice President: Callisto MadavoCoordinator for BCEAO: Charles Humphreys
Sector Manager: Gerard ByamTask Team Leader: Ann C. Rennie
AFRICABCEAO REGIONAL PAYMENT SYSTEMS PROJECT
CONTENTS
A. Project Development Objective Page
1. Project development objective 22. Key performance indicators 2
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Government strategy 33. Sector issues to be addressed by the project and strategic choices 4
C. Project Description Summary
1. Project components 42. Key policy and institutional reforms supported by the project 63. Benefits and target population 64. Institutional and implementation arrangements 7
D. Project Rationale
1. Project altematives considered and reasons for rejection 82. Major related projects financed by the Bank and other development agencies 93. Lessons learned and reflected in proposed project design 114. Indications of borrower commitment and ownership 115. Value added of Bank support in this project 1 1
E. Summary Project Analysis
1. Economic 122. Financial 123. Technical 134. Institutional 135. Environmental 146. Social 147. Safeguard Policies 15
F. Sustainability and Risks
1. Sustainability 152. Critical risks 163. Possible controversial aspects 17
G. Main Conditions
1. Effectiveness Condition 172. Other 17
H. Readiness for Implementation 17
I. Compliance with Bank Policies 17
Annexes
Annex 1: Project Design Summary 19Annex 2: Detailed Project Description 22Annex 3: Estimated Project Costs 38Annex 4: Cost Benefit Analysis Summary 39Annex 5: Financial Summary 41Annex 6: Procurement and Disbursement Arrangements 42Annex 7: Project Processing Schedule 53Annex 8: Documents in the Project File 54Annex 9: Statement of Loans and Credits 55Annex 10: Country at a Glance 57
MAP(S)N.A.
AFRICA
BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Project Appraisal Document
Africa Regional OfficeAFTPF
Date: September 26, 2000 Team Leader: Ann Christine RennieProject ID: P054884 Sector(s): FY - Other FinanceLending Instrument: Technical Assistance Loan (TAL) Theme(s):
Poverty Targeted Intervention: N
Project Financing DataO Loan M Credit D Grant C Guarantee D Other (Specify)
For Loans/Credits/Others:Amount (US$m): $9.43 M
Proposed Terms: Standard CreditGrace period (years): 10 Years to maturity: 40Commitment fee: Standard Credit Service charge: 0.75%
Financing Plan: Source Local Forea!n TotalGOVERNMENT 2.07 1.81 3.88IDA 0.94 8.49 9.43OTHER PRIVATE COMMERCIAL SOURCES 0.32 5.63 5.95(UNIDENTIFIED)
Total: 3.33 15.93 19.26
Borrower: BCEAOResponsible agency:BCEAO (Banque Centrale des Etats de l'Afrique de l'Ouest)Address: Dakar, SenegalContact Person: Mme. Fatimatou Zahra Diop, M. Jean-Claude BrouTel: 221-839-05-00; Fax: 221-823-93-35 Email: [email protected];[email protected]
Estimated disbursements ( Bank FYIUS$M):FY 2001 2002 2003 2004 2005
Annual 2.2 4.0 1.7 1.1 0.4Cumulative 2.2 6.2 7.9 9.0 9.4
Project implementation period: 4 yearsExpected effectiveness date: 01/15/2001 Expected closing date: 07/31/2005
OCS PAD Fo-n R.. M-hd., 200
A. Project Development Objective
1. Project development objective: (see Annex 1)
The primary objective of the project is to establish and install an appropriate set of regional paymentmechanisms to satisfy the evolving needs of all market sectors in the West African Economic and MonetaryUnion (WAEMU) - consumer, retail, industrial, commercial, government, financial markets, andinternational - for making payments in a safe, sound, secure and timely manner with certainty and at anacceptable cost. A secondary, but nevertheless equally important objective, is that the new paymentssystems satisfy internationally accepted standards and core principles and thus ensure a high level of userconfidence in the WAEMU financial systems.
A well-functioning payments, clearing and settlement system is key to an efficient financial sector, andplays an important role in reducing credit, liquidity and systemic risks in the system. By supporting theimplementation of a state-of-the-art payment system for the entire WAEMNJ region, the project wouldcontribute to the development of non-cash transactions, the strengthening of banks, the deepening of thefinancial sector, and, more generally, increased regional integration and the expansion of trade andinvestment among and within member countries.
2. Key performance indicators: (see Annex 1)
Key indicators include increasing the volume of non-cash transactions processed by the system, thedevelopment of electronic transactions, and the reduction in payment delays and intermediation costs fordomestic, regional and international transactions.
B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex I)Document number: N/A Date of latest CAS discussion: N/A
This project is included in the draft Regional Assistance Strategy (RAS) which is being developed for WestAfrica, which encompasses the 16 countries stretching from Mauritania to Nigeria. As part of thisstrategy, a special focus will be put on promoting regional integration and reinforcing existing regionalbodies, including WAEMU, which is comprised of eight countries (Benin, Burkina Faso, C6te d'Ivoire,Guinea-Bissau, Mali, Niger, Senegal and Togo). These countries share a common currency (CFA franc)and Central Bank (Banque Centrale des Etats de l'Afrique de l'Ouest, BCEAO), a common external tariffsince January 1, 2000, a common set of business laws under the OHADA initiative, and a common stockexchange based in Abidjan (C6te d'Ivoire). The Bank Group has helped member countries adjust to theintroduction of a common external tariff, and implement the Organization for Harmonization in Africa ofBusiness Law (OHADA) initiative. It has also helped in the establishment of the Regional StockExchange. Reducing the high costs of doing business in the sub-region, and integrating financial marketsare two specific objectives of the RAS which will be advanced by this project.
BCEAO was established by treaty in 1973 as an international public institution headquartered in Dakar,Senegal. The Governor of the BCEAO is appointed by the Council of Ministers for six years and cannotbe removed from office during that period. He convenes and chairs the Board of Directors, which iscomprised of two directors per country and two directors from France.
The Council of Ministers sets monetary policy objectives, and BCEAO has overall management of
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monetary policy and ensures the viability of the West African CFA Franc, which is pegged to the Euro(656 to 1) with convertibility guaranteed by the French Treasury. BCEAO is also in charge of proposingbank legislation, while supervision is entrusted to the Banking Commission, with BCEAO providingresources to the General Secretariat. Accordingly, strengthening the working relationship with BCEAO isparamount for effective macroeconomic and financial sector work in the eight WAEMU countries.
The International Development Association (IDA), under its Articles of Agreement, may provide financingto public international or regional organizations for the benefit of IDA members. Since BCEAO is thecommon Central Bank of the eight WAEMU member states (all IDA eligible countries), and because itoperates the existing payment system and will be responsible for project implementation and operation, it isthe logical choice of borrower for this credit. No counter-guarantees by governments are deemednecessary; indeed, BCEAO is considered to be more creditworthy than any of its constituent membercountries, and has often been called upon in the past to guarantee obligations of WAEMU states. Duringnegotiations, it was agreed that the credit could be accelerated in accordance with the provisions of the1996 policies as decided by the Executive Directors (IDA/R96-145) following IDA 11 replenishmentdiscussions. This would occur if the sum of the GNP of BCEAO's constituent countries, weighted by theirrespective share in BCEAO's capital, has exceeded for three consecutive years the level annuallyestablished by IDA. The repayment terms of the credit could subsequently be modified if the economiccondition of the constituent countries deteriorates significantly. BCEAO has sought and obtained approvalfrom the WAEMU Council of Ministers to negotiate and sign the Development Credit Agreement for thisproject.
2. Main sector issues and Government strategy:
The present payment system is a constraint to the development of business and banking services in theWAEMU area. It is slow, unreliable, cumbersome and costly to all participants. The formal sector is stillnarrow in the WAEMU region, and most monetary transactions are in cash. The number of bank accountsis small: it is estimated that less than 6.4 percent of the estimated 24 million active population in the regionhave a bank account compared to 90 to 95 percent in developed countries. The daily average volume ofchecks, representing about 80 percent of non-cash transactions, was only around 35,000 in 1996.
In the 1980s, poor macroeconomic policies and mismanagement of banks, many of them in the publicsector, led to economic decline and a financial sector crisis in most member countries. The devaluation ofthe CFA franc in January 1994, supported by economic reform programs, has restored a healthy export-ledgrowth in most countries of the area. Most countries have also implemented far-reaching reform programsin their own financial sectors, including privatization of banks and reinforcement of supervision at theregional level by the Banking Commission.
Because, inter-alia, the present payment system is not efficient, the inter-bank market in the WAEMU areais almost non- existent despite diverging financing requirements among member countries throughout theyear. Most bank refinancing is done through BCEAO. Over-liquid banks have few opportunities forinvesting their funds, and therefore tend to keep high balances with the Central Bank at low interest rates.On the other hand, banks in need of refinancing borrow from the Central Bank, but at a higher cost thanthey would get on the inter-bank market.
Until recently, the telecommunications sector was a major stumbling block to the development of anefficient payment system. In most countries, telecommunications are being privatized, however, whichshould improve service reliability and reduce costs over time. In recent years, banks in the region haveinvested heavily in the development of information technology, including for addressing the Y2K issue.
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BCEAO has also recently developed its own satellite network to connect its 8 national (agence principale)and 15 local branches (agence auxiliaire) in WAEMU countries. This infrastructure will be used as thebasis for improving the payment systems at a relatively low cost.
The legal framework, including inter-bank rules and procedures to ensure that payment transactionprocessing is fully compatible from one participant to the other, and fully transparent for banks' clients,needs to be strengthened, in particular with regards to electronic payments.
3. Sector issues to be addressed by the project and strategic choices:
By establishing a modem payment system, the project would increase opportunities for transactions acrossthe WAEMU area for both banks and their clients, thus fostering trade and contributing to regionalintegration. It would increase security of payment and lower the cost of transactions.
C. Project Description Summary
1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):
The project includes five components: (i) project support; (ii) a real time gross settlement system (RTGS);(iii) a low value clearing system (COMPENS); (iv) an inter-bank card system, including a feasibility studyfor e-money (Monetique); and (v) a common telecommunications and computer infrastructure based onBCEAO's facilities.
The project support component includes project management and monitoring, training, procurement, legalframework, and beneficiary surveys. International and local consultants will be hired on a temporary basisto help the project unit (Mission pour la Reforme des Systemes et Moyens de Paiement, MRSMP) manageand implement the project, establish appropriate rules and procedures, train staff of participatinginstitutions, and carry out surveys of beneficiaries.
The RTGS component includes the establishment of a real time gross settlement system at the regionallevel. The system would be open to banks and other financial institutions, who would have to select one oftwo modes for participating. A direct participant would access its own account at BCEAO and have adirect technical on-line access to the RTGS. An indirect participant would have a settlement accountmanaged by BCEAO, but no technical access to the RTGS. A non-participating financial institution couldbe represented by a direct or indirect participant. In that case, the institution would have no settlementaccount with BCEAO. The direct or indirect participant would be financially responsible for alltransactions made on behalf of that institution.
The RTGS system is intended to meet the demand for high value or time-sensitive payments of thewholesale sector of the market (inter-bank transactions, securities settlement, BCEAO monetary operations,settling of the daily net balances of the low value clearing and settlement system, and time critical paymentsin the corporate and government sectors). It would settle the payment leg of securities transactions held byBCEAO with a direct link with the delivery of securities. The settlement of the payment of securitiestraded on the Regional Stock Exchange (RSE) could also be made through the RTGS. By 2003-04, it isestimated that the RTGS system would process about 250,000 transactions annually. A key objective ofthe RTGS is to mitigate the risk that failure of a single financial institution puts the entire system at risk.This may happen when a large debit position of a participant cannot be covered and all transactions need tobe reversed. The proposed RTGS will be designed in compliance with Bank of International Settlements(BIS) payment system principles which address this risk.
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The low value clearing component would upgrade existing systems at the national and regional levels tomake them more efficient. It is designed to meet the daily low-value payment needs of a broad spectrum ofusers, including consumer, retail, commercial, industrial, and government. It would also cover a variety ofpayment instruments (checks, automatic debits and credits, payment orders, card payments, etc.). To avoidthe drawbacks associated with the clearing and transport of paper, a new scheme has been designed. Itwould allow a payee's bank to present all its national instruments to the nearest and most convenient localor national BCEAO branch. All paper transactions, including outstation transactions, would be givenlocally to the payor's bank at the same locations as the former clearing houses (e.g., BCEAO offices). Thepayor's bank would have the responsibility to inform the payee's bank of a payment rejection within anagreed number of days due to transaction and fund availability control. In parallel, interbank clearing andsettlement would be done on the basis of electronic files: local transactions and local bilateral balanceswould be sent by local BCEAO branches and consolidated at the national level for settlement.
Initially, settlements would be made using the current accounts of participating banks held at nationalbranches of BCEAO. When the large value clearing and settlement system (RTGS) is in place, accountingand settlement of national multilateral balances would be processed directly in this system. By 2004, it isestimated that this system would process about 20 million transactions annually.
The inter-bank card system would develop a common bank card product, enabling any bank customer touse it in any Automated Teller Machine (ATM) or participating merchant's facility (Point of Sale - POS) inthe sub-region. This component would include the formulation of a regulatory framework and contractualarrangements, the establishment of a center in charge of regulating the system on behalf of banks andmaintaining relations with international bank card networks like VISA, MASTERCARD, etc. The centercould subcontract technical operations to one or more service providers in order to minimize costs, shareinvestments, and increase the reliability and security of the system. It is estimated that in 2003-04, about250,000 cards would be in use, resulting in about 5 to 10 million transactions annually. The success of thecard component, which is being financed largely by commercial banks in the region, will ultimately dependon the efforts of these banks in marketing the card as a desirable product.
The project would include a feasibility study on the use of e-money systems, such as smart cards, for smallpayments as a means of expanding the use of non-cash means of payment to those who do not currentlyhave bank accounts, including the poor. Payment of electricity bills, for example, 90% of which arecurrently paid in cash, could be targeted for this study.
For all three payments systems described above, the BCEAO's telecommunications satellite network wouldbe used to effect transactions with a high degree of security and at low cost. Local networks would haveto be built and secured for connecting banks' local branches and ATMs and POS facilities. Banks wouldfinance the cost of developing the local networks and would utilize BCEAO's telecommunication facilities,as appropriate, to minimize costs.
Project Costs by Component
Indicaiive Bank- %OfComponent Sector Costs % of financing Bank-
(US$M) Total (US$M) financingProject support Financial Sector 2.60 13.5 1.56 16.5
Development
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Real Time Gross Settlement System Financial Sector 2.47 12.8 2.00 21.2Development
Clearing System Financial Sector 4.05 21.0 2.08 22.1Development
Bank Card System Financial Sector 4.45 23.1 0.26 2.8Development
Telecommunications Financial Sector 2.76 14.3 1.50 15.9Development
PPF (Regional stock exchange) Financial Sector 1.30 6.7 1.30 13.8Development
Contingencies Financial Sector 1.63 8.5 0.73 7.7Development
Total Project Costs 19.26 100.0 9.43 100.0Total Financing Required 19.26 100.0 9.43 100.0
Two PPF advances (P-878-0 and P-878-1) related to the establishment of the regional stock exchangetotaling US$1.3 million granted in 1994 and 1996 are managed by BCEAO staff and will be refinancedunder the project.
2. Key policy and institutional reforms supported by the project:
The project would complement financial sector reforms undertaken in most WAEMU member countries inrecent years. It would minimize the settlement risk in the payments system for large value funds transfers.It would introduce a modem institutional and legal framework for payment services in the sub-region. Itwould reinforce the surveillance role of BCEAO over financial institutions. It would establish norms andstandards for payments across the monetary zone. It would strengthen the new BCEAO data base systemput in place to track clients who have issued bad checks or payments. It would facilitate non-cashpayments, and reduce the need for high cash liquidity in the system. It would enable the development ofnew means of payments for the poor. It would promote the development of an inter-bank market. It wouldimprove the marketability of government debt, and foster the development of the regional stock exchange. Itwould facilitate efforts to fight money laundering, and would lay the foundation for future developmentssuch as e-commerce.
3. Benefits and target population:
The project would improve the quality of payment services, reducing costly float, speeding up circulationof funds, and increasing the efficiency of funds transmission. It would provide appropriate tools tofinancial institutions to facilitate enhanced cash management and avoid credit and liquidity risk. It wouldcontribute to a deepening of the financial sector. It would establish the conditions for expansion of regionalstock exchange activity. It would facilitate the development of government debt markets. It would reducetransaction costs and improve the environment for private sector development. Finally, it would facilitateregional economic integration.
Beneficiaries would be participating financial institutions, enterprises, the increasing number of peopleusing bank services, and small consumers who currently have no access to banking services. A baselinesurvey of beneficiaries would be conducted at the outset of the project. Follow-up surveys would becarried out when all the systems are in place and operating.
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4. Institutional and implementation arrangements:
Implementation period: The project would be implemented over four years, starting with the low valueclearing system, followed by the real time gross settlement system, and, in parallel, the inter-bank cardcomponent.
Implementation Agencies: Project implementation would be coordinated by a special unit MRSMP whichhas been created within BCEAO, which has been staffed with qualified BCEAO personnel for the durationof the project. The unit would receive temporary assistance from specialized consultants. Banks wouldparticipate closely in the implementation of the project. They would be responsible for the installation offacilities required to make the systems work in their branches and head offices.
Oversight and coordination. The MRSMP reports to the Governor of BCEAO. It works closely withconsultative committees established at both the national and sub-regional levels, which compriserepresentatives of beneficiaries and end-users, as well as international experts in payments systems. Bankshave established sub-committees on RTGS, treasurers, low-value payments, card systems and legal andregulatory aspects, which advise the project implementation unit. The Committee of Experts, whichincludes representatives from national committees and technical sub-committees, will meet regularlythroughout project implementation to provide advice and recommendations on options presented. Thiscommittee was created to ensure the involvement and ownership of all stakeholders. As required, theInternational Panel of Experts, drawn from European central banks and international organizations, willparticipate in deliberations of the Committee of Experts.
Accounting, Financial Reporting, and Auditing Arrangements A financial management systemacceptable to IDA will be established to provide project management and IDA with accurate and timelyinformation regarding resources and expenditures. It will include accounting, financial reporting andauditing as well as procurement and physical progress monitoring elements in compliance with the WorldBank's policies and procedures (OP/BP 10.02 as well as financial management initiative requirements). Adetailed action plan for the establishment of such a system was agreed during project preparation. It isbased on the conclusions of the financial management capacity assessment conducted during thepreparation phase, and which helped define the financial management arrangements as summarizedhereafter.
Financial Management Capacity Assessment
The report of the financial management capacity assessment can be found in project files. The conclusionsindicate that despite a well-established accounting organization and detailed administrative and accountingprocedures, BCEAO's current financial management system does not allow for keeping the project'saccounts as a sub-system of the main accounting system. This would require some adjustment to ensure thatthe project's transactions would be recorded and reported on in detail and scope commensurate with WorldBank financial management requirements and the project's information needs. The required improvements(defining an additional set of accounts to the existing chart of accounts to record separately transactionsrelated to the project or creating a separate cost center for the project within the main accounting system)are not feasible within the current system based on the conclusions of the assessment. Therefore, it wasagreed that a separate autonomous financial management system would be more appropriate for the project.
BCEAO has detailed procedures presented in a five-volume accounting manual, in addition to severalguidelines describing specific procedures such as procurement of goods and services, monitoring anddepreciation of fixed assets, posting certain types of transactions, etc. Although these procedures andguidelines are satisfactory, they could be cumbersome due to excessive pre-payment measures. The
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assessment therefore concluded that it would be appropriate to have simplified procedures applicable to theproject while maintaining internal control procedures that would ensure that funds are safeguarded. As aresult, a specific set of accounting procedures has been developed for the project and incorporated in theProcedures Manual.
The specifications of the autonomous financial management system and the accounting manual, along withthe prerequisites, were taken into account in defining the project's overall financial managementarrangements presented hereafter.
Financial Management Arrangements
Accounting software: The project would be equipped with a multi-currency accounting software capable ofrecording and reporting the project's operations by component, sub-component, activity, and expenditurecategory, regardless of the origin of funds. The software should also offer a budget planning and monitoringmodule, a contract monitoring module and a reporting module capable of generating the periodic projectmanagement reports required under the financial management initiative, formerly known as LACI. Detailedterms of reference for the selection of the accounting software were prepared by BCEAO and approved byIDA during project preparation. The software should be installed and functioning satisfactorily to IDA priorto effectiveness.
Accounting procedures: Project-specific accounting procedures have been developed based on BCEAO'sestablished procedures and guidelines which have been tailored to the project's needs for more flexibility andrapidity while respecting internal control requirements. The draft manual has been submitted to IDA forapproval. The final version satisfactory to IDA is a condition of effectiveness.
Financial reporting: Separate financial statements will be prepared for the project annually, comprising i) astatement of Source and Application of funds for the project during the current financial year andcumulatively since the start of the project, and ii) a balance sheet. In addition, a quarterly report using theProject Management Report models, including financial statements, procurement/contracts schedule andoutput monitoring, will be submitted one month after the end of each quarter.
Auditing: The financial statements of the project will be audited each fiscal year by an independent auditoracceptable to IDA in accordance with acceptable auditing standards. The selection and appointment of theproject auditor, according to terms of reference satisfactory to IDA, is a condition of effectiveness.
Accounting staffing: To ensure that the project's accounting is kept up-to-date and provides timely andregular informnation, an accountant will be assigned to the project. The project's accountant will work underthe supervision of the accounting department as specified in the project manual of procedures. Theappointment of the accountant in the project team, according to terms of reference and qualificationsapproved by IDA, will be a condition of effectiveness.
D. Project Rationale
1. Project alternatives considered and reasons for rejection:
An integrated regional approach to improving payment systems is more effective and cost-efficient forcountries belonging to a monetary zone like WAEMIU than a national approach. Therefore it was decidedto focus the proposed operation at the regional level instead of preparing individual country projects.
The project was prepared by consultants in close coordination with the Committee of Experts, chaired by
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BCEAO, and including representatives of the banking community of each WAEMU member state,international payments experts from several major western central banks, and representatives from theWorld Bank and International Monetary Fund (IMF). Several meetings took place to agree on basicprinciples and objectives of the payment system reform and the architecture and design of the newinfrastructure for the sub-region.
The first scheme, which was rejected, was the continuation of a fully decentralized clearing and settlementsystem for all payments at the local level. The opposite scheme, which was rejected as well, was theconstruction of a single centralized system at the regional level. The solution retained was the constructionof a flexible system composed of a few main components dealing respectively with systemically importanttransactions (RTGS), clearing of low value transactions on a net basis, and a common card scheme andsystem at the regional level. The committee agreed that a RTGS should be implemented for large valuetransactions and settlement of net system balances, despite the high cost involved initially. The committeealso agreed that the payment leg of the settlement/delivery of securities held at BCEAO should be settledthrough the RTGS.
Another solution, which was rejected, was the continuation of the paper-based clearing and settlementsystem. The committee agreed that the low value clearing and netting system should be based on electronicfiles. It was also agreed that the system would process all kind of instruments: checks, payment orders,direct credits, automatic debits, card transactions, etc. Furthermore, the system's architecture will allow allpayees' bank payment transactions to be presented to the payor's bank in any location, which is notpresently the case.
Another solution, which was rejected, was the development by banks of their own independent card system.The committee agreed that all banks in the area should support and participate in the development of asingle card system to reduce costs and increase business for all particpants. It also agreed that BCEAOshould play an initiating role in the promotion of the card system, with a specialized regional card center,owned by commercial banks, in charge of development and management of the system.
2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).
The absence of a quick and reliable clearing and settlement payment system has been identified as a seriousobstacle to the development of regional securities markets and government debt markets in WAEMU. TheBank provided technical assistance to BCEAO in the initial phases of development of the regional stockexchange, and the Canadian International Aid Agency (CIDA) is providing ongoing support to both theexchange and the securities commission. The U.S. Treasury is providing technical assistance to BCEAOand member states for the development of government securities markets in the region.
Indirectly, the project supports ongoing private sector development and financial sector work throughoutthe region by lowering transaction costs and thereby increasing the efficiency and competitiveness of boththe financial and wider private sectors. It is consistent with the World Bank's regional financial sectorstrategy of supporting regional initiatives to attain critical mass in small financial sectors. Finally, itsupports the regional assistance strategy currently under development by fostering regional integration andintra-regional trade.
The World Bank has recently agreed to a request from Banque des Etats de l'Afrique Centrale (BEAC),the Central Bank of the Central African Economic and Monetary Community, to provide assistance in
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modernizing its payment system. The experience gained from the proposed project should prove invaluablein dealing with very similar problems in the BEAC region.
Latest SupervisionSector Issue Project (PSR) Ratings
. _______________________________ .________.___ _________ __ (Bank-financed projects only)Implementation Development
Bank-financed Progress (IP) Objective (DO)Support Government in the Cote d'Ivoire Financial Sector S SPrivatization of banks and State arrears Adjustmenttreatment (Ln. 3408, Cr. 2303)
Provide support in the financial sector Burkina Faso PASP TA S Sreform activities including: bank (Cr. 24720)privatization, recovery trust and morerecently microfinance
Support Government in the Mali Financial SectorPrivatization/restructuring of banks, (ML-PA- 1748) (not yetinsurance companies, and microfinance effective)Support Government in Togo PERP - Cr. 3045 S UPrivatization/restructuring of banks and Togo Financial Sector Adjust.microfinance (TG-PA-35625)
Develop RTGS payment system and Mauritius Financial Sector S Ssupport govermnent in debt Infrastructure Projectmanagement (Ln. 701 1-MAS)Structural adjustment credit for balance Benin SAL II (Cr. 2283) S Sof payment support
Other development agenciesCIDA: microfinance, Regional Stock BCEAO: PARMEC, AARCECExchange
AFD: RSE, SME Finance
U.S. Treasury: study and promotion of BCEAOGovernment securities markets inWAEMU
International Labor Organization: BCEAO: PASMECmicrofinance
IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)
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3. Lessons learned and reflected in the project design:
The first lesson drawn from experience is that the development and implementation of a payment system isa complex process requiring the active involvement of all stakeholders. At the regional level, a Committeeof Experts representing stakeholders has been set up for the design of the project and has been closelyinvolved in all phases of project preparation. The same committee, composed of major stakeholders'representatives, will continue to play a key consultative role during project implementation, and technicalsub-committees have been created with correspondant committees or working groups in each country.
The second lesson is that a proper sequencing of individual components is essential. Under the project, thelower value system should be implemented first because it would handle the vast bulk of operations, andwould have the most immediate positive impact on the greatest number of end-users. This component,unlike the RTGS, represents an incremental step for banks, and will not require a major change in internaloperating procedures or systems. It would be followed by the bank card system, whose success depends onthe existence of a rapid & reliable low value system. In parallel, the core functions (settlement andaccounting module) of the RTGS system would be implemented in order to settle the transactions from thenetting systems. Overlapping in the development and installation phases of each component need to becarefully scheduled and managed in order to optimize quality and time.
The third lesson is that it is essential to provide a sound legal framework and to develop and enforcesuitable standards covering all critical aspects of payment system operation. The legal framework has beencarefully reviewed by consultants, who recommended several amendments to existing legislation.Standards have been developed in close consultation with stakeholders, and will be enforced by BCEAO.Rules and procedures would be developed under the project.
4. Indications of borrower commitment and ownership:
The proposed project is the result of a direct request from Governor Banny to President Wolfensohn for theBank to provide assistance to modernize the payment system. BCEAO has established a full-time projectunit (MRSMP), which has been working with the Bank and the consultants who prepared the feasibilitystudy for almost two years. BCEAO has assigned a director in charge of the MRSMP who chairs theCommittee of Experts as well. Meetings of the committee were convened at regular intervals, andattendance by stakeholder representatives has consistently been at a high level of responsibility. Membersof the BCEAO project unit have travelled to each member state to discuss the project with senior bankersand other beneficiaries in-country, and the Governor has met with senior management of all banks in theregion in order to obtain their agreement to proceed with the project. The ministers of finance of themember countries have been kept regularly informed on the status of project preparation, and are fullysupportive of the initiative. In June, the WAEMU Council of Ministers authorized Governor Banny toconclude negotiations and sign the Development Credit Agreement with the World Bank. BCEAO hascommitted significant financial and human resources to the project and will continue to do so throughoutproject implementation.
5. Value added of Bank support in this project:
The Bank has supported the reform of the financial sector in five countries out of the eight concerned,through adjustment lending, technical assistance and investrnent lending. The Bank has been instrumentalin mobilizing funds for project preparation and for promoting an open dialogue between stakeholdersduring project preparation. A bank payment system expert has attended key meetings of the Committee of
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Experts, and, drawing lessons from experience around the world, has provided critical input to help build aconsensus on technical and institutional issues. The Bank has assisted BCEAO in the creation of aninternational advisory panel composed of representatives of the central banks of Belgium, France,Swizterland, Portugal, and a representative from the IMF.
BCEAO is a key player in the WAEMU region for promoting financial sector and fiscal stability andeconomic reform. Developing and maintaining a partnership with BCEAO is paramount for the Bank'smacroeconomic and financial sector work in the eight member countries. This project would build on theongoing dialogue and help BCEAO introduce modern payments instruments and efficient clearing andsettlement processes with the support of the banking community in the area.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)
1. Economic (see Annex 4):O Cost benefit NPV=US$ million; ERR = % (see Annex 4)* Cost effectivenessO Other (specify)It is quite difficult to quantify the project's benefits. Nevertheless, it is expected that the returns on theinvestment required to modernize the payment system will be quite high. There are significant macro andmicro-economic benefits to developing an efficient payment system, including: i) promotion of economicactivity, particularly domestic and international trade and commerce, leading to greater regional integrationand a progressive switch from the informal to the formal economy as financial services become less costlyand more reliable; ii) improved monetary policy, as the ability of BCEAO to control monetary aggregates,adjust reserve requirements, and utilize open market operations efficiently depends on a more reliablepayment system; iii) financial sector development, including the development of new financial instruments,products and markets, increased competition among financial institutions, better service and lowertransaction costs to customers; iv) improved efficiency and cash management, reduction of float, and asharp decrease in delays for participating banks and their clients; funds which are currently tied up inlengthy clearing and settlement processes will be available for more productive uses; and v) the reduction ofrisk exposure for the Central Bank and the financial system as a whole because of the RTGS.
The design of a modem payment system should ensure the lowest cost to all parties, subject to appropriatestandards of speed, certainty, reliability, convenience and safety. The proposed three-pronged strategy(RTGS, low-value, and card system) proposed for the WAEMU countries is the result of extensiveconsultation with end-users, and was deemed to be the most cost-effective. The RTGS will handle timecritical, high-value payments with greater speed and security (at a higher cost), than the system forhandling bill payments and small checks.
2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR= % (see Annex 4)Investment and recurrent cost estimates for the project reflect the professional judgment of experiencedpayment system design practitioners and are consistent with costs incurred in establishing similar systemsin other countries. The banking community has been closely involved in the preparation of the project.Cost estimates have been reviewed carefully by the Committee of Experts. Annual fees levied onparticipating institutions are expected to amortize investment costs over a period of five to ten years.Operating costs would be recovered through fees related to the volume of transactions. Benefits expectedby participating banks from the new payment system would more than offset their cost.
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Fiscal Impact:
Direct fiscal impact will be minimal. Insofar as a more efficient payment system should result in increasedeconomic activity in the formal sector, greater transparency in financial operations, and reduced delays andtransaction costs for government, government agencies and fiscal authorities, the indirect fiscal impactshould be positive.
3. Technical:The technical architecture and functional specifications of the proposed payment system are fullycompatible with the present development of information technology in the banking system and with BIS'srecently published ten core principals on payment systems. A satellite-based telecommunications system isin place linking BCEAO headquarters in Dakar with its national and local branches. It would be used forthe payment system under contractual conditions, to be defined. The legal specifications for use of thesystem are being established in close coordination with the banking community. Security of information isa key concern that has been consistently addressed during project preparation.
4. Institutional:
4.1 Executing agencies:
BCEAO would be responsible for coordinating physical implementation of the payments system and foroperating the RTGS and low value clearing components. It would benefit from assistance from qualifiedand experienced RTGS and low value payment systems consultants, who would specify and oversee theacquisition and installation of appropriate technology, supervise operation of the systems and providetraining to relevant staff in BCEAO and participating banks. BCEAO would take a leadership role in thedevelopment of an inter-bank card system. It would promote and help create the center in charge ofcoo.dination and implementation of the bank card scheme. Taking into account the experience in France, asolution envisaged is that the center would be created as a groupement d 'intret economique, which is anon-profit limited partnership established for a specific purpose with joint responsibility of each member.One principle agreed during the last meeting of the Committee of Experts is that this center will be able tosub-contract to experienced services providers operational functions in order to optimize quality and costs.
4.2 Project management:
The project would be managed by the MRSMP at BCEAO, which has been in existence for approximatelytwo years and has had overall responsibility for project preparation. The Mission is headed by a Director,and consists of a multidisciplinary team from BCEAO (finance, economics, law, etc.). Given theimportance and characteristics of each project component, a sub-project leader for the various components(clearing and settlement, RTGS, card system, telecoms and legal framework) will be appointed who will beresponsible for coordinating all tasks required in the implementation of the given components. TheMRSMP will have recourse to specialized consultant services during project implementation andinstallation of the new systems. It will, moreover, rely on input from national Consultative PaymentCommittees and the Committee of Experts which would regroup bankers and other end-users.
4.3 Procurement issues:
For some of the material and equipment to be financed under the telecommunications component, BCEAOis requesting sole-sourcing as the procurement method to be utilized. Due to inadequatetelecommunications in the region, in 1999 BCEAO set up and began operating its own private very smallaperture terminal (VSAT) satellite telecommunications network to connect its 25 offices. Since a modempayment system requires reliable and secure telecommunications, this private network would be utilized by
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the financial community to transport payment transactions in a secure manner. The incorporation of thisnetwork into the project would require upgrading the system and increasing its load capacity. The existingnetwork was acquired through international competitive bidding from the market leader at a cost of US$2.9million. It would be necessary to acquire the expansion electronic cards and other material required for theproject from the same supplier at a cost of approximately US$1.4 million. Other materials for the telecomscomponent would be procured through international competitive bidding.
4.4 Financial management issues:
Financial management issues are discussed in C.4
5. Environmental: Environmental Category: C (Not Required)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.
Not Applicable
5.2 What are the main features of the EMP and are they adequate?
Not Applicable
5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft:
Not Applicable5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?
Not Applicable
5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?
Not Applicable
6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.
This project does not entail interventions targeted at specific social groups. That said, it will include afeasibility study on the use of electronic money for small payments such as electricity or water, with theobjective of increasing access to financial services to low-income households which are presently excludedfrom banking services.
6.2 Participatory Approach: How are key stakeholders participating in the project?
The project has been developed in close consultation with major stakeholders. A consultative group, theCommittee of Experts, established for project preparation under BCEAO's chairmanship, met regularly toreview proposals made by consultants and to reach agreement on key aspects of the project. Thiscommittee would continue to operate during project implementation. Eight national committees have alsobeen formed with the creation of sub-committees which would review and organize the implementation oftechnical solutions regarding not only interbank systems but interfaces and new procedures to be installedin each financial institution.
6.3 How does the project involve consultations or collaboration with NGOs or other civil society
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organizations?
The above consultative committees include consumer and business representatives. These end-users willalso be polled in baseline and mid-term reviews in order to establish their satisfaction with the new systems.
6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?
The project implementation unit will rely on input from national Consultative Payment Committees and theCommittee of Experts, which are comprised of bankers and end-users.
6.5 How will the project monitor performance in terms of social development outcomes?
By improving the environment for private sector development, the project would have an indirect impact onpoverty alleviation. The increased security in the payments system would enable a large number of peopleto switch to non-cash transactions, thereby reducing risks related to the need for them to keep cash in hand.The study on e-money systems for very small payments, if successful, would open up opportunities for thepoor to be better integrated into the modem economy. These outcomes will be measured by performanceindicators on volumes of non-cash transactions, and through customer surveys.
7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project? ..
Policy ApplicabilityEnvironmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes * NoNatural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes 0 NoForestr (OP 4.36, GP 4.36) O Yes * NoPest Management (OP 4.09) O Yes * NoCutural Property (OPN 11.03) C Yes * NoIndigenous Peoples (OD 4.20) O Yes * NoInvoluntary Resettlement (OD 4.30) 0 Yes * NoSafety of Dams (OP 4.37, HP 4.37) 0 Yes * NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) OYes@NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No
7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.
F. Sustainability and Risks
1. Sustainability:
The project is technically and financially sustainable. Technicians required to operate and maintain thesystems have been identified and would receive on-the-job training from specialized consultants. Eachparticipating institution would ensure that its staff is fully conversant with the new technologies andmethods. Operating costs of the new systems would be recovered from participating institutions, whichwould in turn charge their clients for the services. Overall costs of the new system are expected to be lowerthan those of the existing payment system.
Almost one-third of the total project costs are to be covered by commercial banks. This contribution ofbanks to overall project costs does not constitute traditional "co-financing" but represents banks' financing
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of their own investment costs to prepare for the new system, and it is clearly in the best interests of thebanks to make the requisite investments. Most of the commercial bank financing will be used to finance theinterbank card system, which is a desirable but not necessary component to the project, and is not beingfinanced with IDA funds. Should several (or, in the case of the card project, all banks) opt not to proceedwith the required investment, it would not jeopardize the success of the new low value clearing and RTGScomponents of the project.
2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):
Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveCompetition among banks does not N Competition among banks in the region isincrease; increasing due to privitization and the entry of
new players in the market. The project wouldhelp make end-users increasingly aware of thebenefits of improved payments.
Project benefits do not reach Nend-users;Banks are not committed to broaden their Nclient base.
From Components to OutputsParticipating banks are not fully M Most banks are keen on establishing a modemcommitted to new system (they do not payments system, and are likely to continue tomake the investment required on time, rely on the Committee of Experts for leadership;they do not send highly qualified while some banks may be reluctant to makerepresentatives to the various national or additional investment for the new inter-bankregional consultative committees, they do card, they understand that they cannot afford tonot actively promote the new instruments, miss out on the new system. Moreover, in mostthey are not fully committed to the countries, bank profitability is currently high,inter-bank card); making it an opportune moment to invest in new
technology.System operators have difficulties with M Training provided under the project;new technology and methods
Power supply and telecommunications M Privatization of utilities and back up system areservices are inadequate; improving availability of services; BCEAO will
allow use of its private satellite system
BCEAO does not regulate system N BCEAO is well respected as a Central Bank;efficiently and in a transparent way; during project preparation it has sought
continuous dialogue with banks;
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Legal and judicial environment M The Governments concerned are aware of thedeteriorates, making banks less confident need to improve the legal and judicialthat the new system will work; environment for private business; it is envisaged
that the new regulatory framework for electronicpayments will rely on non-judicial recourse.
Financial environment deteriorates, M Macro dialogue with the eight countriesreducing the liquidity in the system. concerned
Overall Risk Rating M
Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)
3. Possible Controversial Aspects:
G. Main Loan Conditions
1. Effectiveness Condition
e Establishment of a computerized accounting and financial management system satisfactory to IDA;* Employment of an independent auditor acceptable to IDA;* Adoption of project's Manual of Procedures, including accounting, procurement and disbursement
procedures acceptable to IDA; and* Employment of project accountant.
2. Other [classify according to covenant types used in the Legal Agreements.]
H. Readiness for Implementation
1 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.
E 1. b) Not applicable.
1 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.
1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.
D1 4. The following items are lacking and are discussed under loan conditions (Section G):
1. Compliance with Bank Policies
Z 1. This project complies with all applicable Bank policies.C 2. The following exceptions to Bank policies are recommended for approval. The project complies with
all other applicable Bank policies.
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Ann Christine Rennie Gerard A. Byam Charles HumphieysTeam Leader Sector Manager/Dire sr Country Manager/Director
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Annex 1: Project Design SummaryAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Key PerformanceHieriarchy of Objectl" Indicatos Monitoring & Evaluation Critical Aswimptlons
Sector-related CAS Goal: Sector indicators: Sector/ country reports: (from Goal to Bank Mission)Deepen financial sector M2/GDP ratio in WAEMU BCEAO's annual reports and Macroeconomic stability is
member countries increases national statistics maintained in the WAEMUfrom 23.2% in 2000 to 26% in area;2003
Promote regional integration Volume of intra-regional trade Political will to promoteand financial transactions regional integration;increases
Improve environment for Private investment increasesprivate sector development by 15% percent p.a. on
average in the WAEMUregion
Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:Improve efficiency and Large value transactions Quarterly reports from banks Economic agents aresecurity of payments in the settled real time compiled by BCEAO and increasingly confident thatWAEMU region published on website non-cash payments are secure,
rapid and cost effectivePayments problems are Baseline survey and two Regulatory environment isreduced follow-up surveys of conducive to the development
beneficiaries of the formal sector.Beneficiaries are satisfied withnew system
Non fiduciary transactionsincrease by over 10% p.a.
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-I*#*>~~~~eyP ert o i m a;; 0nce' ^ ;
Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:Well functioning Real Time RTGS: 90% of payments (in Quarterly reports from banks Competition among banksGross Settlement system volume and amount) cleared compiled by BCEAO ensures that the benefits of the(RTGS) in less than 15 minutes project reaches the end users;
Payments are processed in the Annual surveys ofRTGS in less than 30 minutes participating bankson average
Rejects less than 1% at end ofsession
Well functioning clearing Complaints decline over time; Client questionnaires Banks remain committed tosystem (COMPENS) settlement completed at end of broaden their client base.
sessions; time required forpayment decreases from up to15 to 2 days in-country andfrom up to 25 to 3 daysinter-country by end 2003Fees paid by end-users forlow-value transactions declinein real terms by 25% fromyear 2000 to 2004
Well functioning inter-bank Number of cards in circulationcard system (MONETIQUE) over 250,000 by
end 2004; number of availablePOS and ATM, and number ofcard transactions increase byat least 10% p.a. onceinter-bank system isoperational.
Telecommunications system Network response time (PINGoperates satisfactorily benchmark) less than 1
second; availability of networkover 95%; banks are satisfiedwith new system
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Key PiformanceKilran:lu of Objecties Indidatom MonWtorLng 6 Evaluoin Critical snumepons
Project Components I Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)Project support (See table in main text) BCEAO's progress reports Committee of Experts
continues to include highlyqualified representatives fromparticipating institutions;
Large value payment systern BCEAO regulates systemefficiently and maintains opendialogue with banks;
Low value payment system Systems operators have nodifficulties with newtechnology and methods;
Inter-bank card system Banks proceed withinvestment needed to makethe system work, arecommitted to inter-bank card,and manage their cashbalances efficiently;
Financial environment isconducive to maintainingliquidity of system;
Telecommunications facilities Telecommunications andpower services continue toimprove;Legal framework is conduciveto new system and participantsagree to use non-judiciaryrecourse
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Annex 2: Detailed Project DescriptionAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
The main objectives of the reform of payment systems in the sub-region are the following: to facilitateeconomic and trade relations in the sub-region with a view to strengthening regional integration; to enhancethe penetration and the role of the financial sector in the economies of the countries concerned; to increasethe efficiency, safety, and timeliness of payment instruments available to governments, businesses and thegeneral population; to limit the impact (i.e. the systemic risk) of a single financial institution's failure uponthe whole financial sector; to improve instruments for monitoring and implementing BCEAO's monetarypolicy in the sub-region; and to promote the development of the regional financial market.
The sub-regional dimension is an essential element of this project. Indeed, economic integration is sufferingfrom the inadequacy of the current payment system, which was cited as an obstacle by the businesscommunity at the time of the project's feasibility study. Plans for a possible expansion of the monetaryunion to other countries within the Economic Community of West African States (ECOWAS) were takeninto account in the design of the project, so it should be possible to incorporate such an event withoutsignificantly altering the system as presently designed.
By strengthening basic infrastructure in the financial sector, reducing costs and times required to effectpayments within the sub-region, and promoting new electronic payment instruments, this project is intendedto accelerate economic development and enhance the financial sector's stability and efficiency for thebenefit of all. These developments are expected to have a beneficial impact on all segments of thepopulation, including the most disadvantaged.
In order to monitor the project's actual impact on beneficiaries, opinion surveys will be conducted regularlyto ensure that targeted objectives have indeed been passed on by financial intermediaries to the ultimateend-users.
The project has five main components: i) overall project support, including the legal framework andtraining; ii) implementation of a real time gross payment system (the RTGS component) for operationsinvolving large or time-critical payments, monetary policy and payment of net clearing house settlements;iii) implementation of a clearing system (the COMPENS component) for bulk payments, the design ofwhich is aimed at accelerating their transformation into electronic data exchanges; iv) establishment of aregional interbank card system (the MONETIQUE component). The card component includes the designand set-up of compatible technical infrastructure required to optimize bank card payment operations,reduce costs and associated risks; and v) upgrading telecommunications infrastructure at the sub-regionallevel, in order to ensure high-quality, low-cost operations. Efficient and reliable communications and datatransmittal are critical to the success of the project.
Description of components:
By Component:
Project Component 1 - US$2.60 millionGlobal Project Support (GPS): US$ 2.60 million(IDA US$1.6 M; BCEAO US$1 M)
The project support component includes project management and monitoring, procurement, training, legalframework, and beneficiary surveys. Intemational and local consultants will be hired to help the project
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team to manage and implement the project, establish appropriate rules and procedures, train staff ofparticipating institutions, and carry out surveys of beneficiaries. Approximately 60% of total costs for thiscomponent consist of training and specialized consulting services to assist in project implementation anddevelopment of detailed technical specifications for the various components (experts in RTGS, clearing &settlement, card systems, legal, telecommunications, etc.). These costs will be financed under the proposedIDA credit. The balance, representing operating costs for project management (staff, audit, accounting,office supplies, etc.) will be paid by BCEAO.
The project's pre-feasibility studies, which have been underway for 18 months, are the responsibility of theproject unit (MRSMP) set up at BCEAO headquarters. Consultative Committees on Payments (Comitesconsultatifs des paiements, CCP) have been set up in each country to ensure that objectives and systemspecifications respond to strategy, objectives, requirements and constraints of financial institutions andend-users. A Committee of Experts, composed of representatives of BCEAO and of national CCP's hascoordinated and validated pre-feasibility studies and project design. Finally, a group of internationalexperts (drawn from four European central banks, the World Bank and IMF) participated in meetings ofthe Committee of Experts to share their experiences with defining and implementing payment systemreform in other countries or regions of the world.
This organizational structure will be strengthened for project implementation:
BCEAO's organization:
- BCEAO's Governor has ultimate responsibility for the project;
- the MRSMP is the project unit. It is headed by the Project Director (Chargee de Mission) and composedof several full-time staff. The Project Director will be assisted by a senior international consultant duringthe entire development and installation phases of the new payment systems. The project unit will beassisted, as needed, by locally or internationally recruited short-terrn consultants charged with resolvingspecific questions related to project sub-components, legal issues, or matters pertaining to training andcommunication.
- at BCEAO headquarters, a Project Group, presided over by the MRSMP, will be composed of relevantdepartment directors and others involved in project implementation at BCEAO. The Project Group will bein charge of specific studies and works required to implement the reform. It will be responsible for, inparticular, the adaptation of BCEAO's existing information systems and the new payment systemcomponents under the direct responsibility of BCEAO (RTGS, COMPENS and Communication).
- within each national BCEAO office, a Technical Monitoring Committee has been created and a full-timeliaison officer has been appointed to address all issues related to the implementation of the new paymentsystems.
Given the importance and specificity of each component, a team, under the authority of the MRSMP, willbe established to implement each component. Consultants will be hired, as required, to assist andcoordinate the tasks involved in implementing each component.
Stakeholder organizations:
a) In each member state:
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The CCP, created during the feasibility study, and consisting of representatives of the banking profession,the Treasury, the post offices' financial services, the business community and consumers has beenstrengthened in its role by the establishment of specialized technical sub- committees. These committeesare regularly consulted on technical and strategic options, as well as on the procedural and organizationalarrangements necessary for the proper functioning of the new payment systems. In each country, fivesub-committees have been created to treat in-depth issues related to project design and implementation:
- treasurers' sub-committee in charge of developing detailed rules and procedures pertaining to:management of liquidity and risks, daily timetables for clearing and settlement, supply of cash,management of securities held by the Central Bank, international transfers, etc.
- RTGS sub-committee responsible for developing rules, standards and procedures for technicaloperation and implementation of the RTGS system.
- sub-committee on clearing (COMPENS) responsible for developing detailed rules, standards andprocedures for technical operation, organization, and implementation of the clearing system.
- sub-committee on bank cards (MONETIQUE) responsible for developing detailed rules,standards and procedures for operation of the bank card (monetique) system and for its technicaland organizational implementation, through the establishment of a regional center (Centremonetique regional, CMR).
- sub-committee on legal and regulatory issues in charge of developing, in close collaboration withthe other sub-committees, the legal and regulatory arrangements needed to implement the newpayment systems.
b) At the sub-regional level
- a Committee of Experts, composed of representatives of the national CCPs, the Project Group, and theproject unit (MRSMP), will meet regularly to discuss options and make recommendations on questionsraised throughout project implementation. This is the same committee that participated in project designand preparation.
The Committee of Experts will set up five sub-committees (similar to those operating in each country)responsible, at the sub-regional level, for monitoring each component, and in particular for coordinatingproject implementation within participating financial institutions.
As needed, the International Panel of Experts, which has advised on project design and preparation, may beasked to participate in the work of the Committee of Experts.
The organizational scheme described above is represented in the following chart.
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Council of MinistersWAMU
... . .. ...... .....
Governor(BCEAO)
Department of Missionsand Projects.
. .. .. .. . .. .... ......... ........... ... ... ... .. .. ... ... ..... ..... ................ ............... .. ... ............
Monitoring < Mission pour la Project GroupCommittee Reforme des Systemes et (BCEAO)
-(BCEAO) by country Moyens dePaiement o sub-region(BCEAO - MRMSP)
Consultative . .Expert CommitteePayment Committee Sub-projectPayment R T G s - CCP delegates
(CCP)Sub-project - International experts
COMPENSl. OMPENS Sub committees
Sub committees Sub-project.MONETIQUE RTGS -
RTGS - TREASURERSTREASURERS Sub-project
COMPENS . :- - - -----LEGAL - COMPENSMONETIQUE Sub-project MONETIQUE
LEGALLEGAL TELECOMMUNICATION
sub-regionby country
Note: The composition and structure of each team will be determined upon start-up of the phase with preparationof the technical specifications for each component, and prior to the issuance of tender documents to suppliers ofsystems.
IDA support is focused on project management and related issues that will ensure that the interests of allstakeholders are taken into account. IDA financing will cover the following:
Project management:* assistance to overall project management: an international consultant (24 months);* assistance and training of component managers: an international consultant (6 months);* Committee of Experts meetings to monitor project progress and ensure that recommendations made
by system participants, end-users and payment systems experts will be applied.
Training:* assistance in implementing a plan for training of participants in the financial sector (provision for
six-month consultancy and coverage of costs associated with a training seminar in each country).
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Legal and regulatory framework:* assistance with legal and regulatory issues (provision of three months consultancy).
Detailed technical specifications of sub-systems:* assistance in developing technical specifications for the RTGS component and international tender
preparation for the supply of the relevant technical system (three-month consultancy);* assistance in developing technical specifications for the clearing (COMPENS) component and
international tender preparation for the supply of the technical system (three-month consultancy);* assistance with the establishment of an institutional framework for the card center (CMR) and for the
preparation of technical specifications for systems to be implemented under the card (MONETIQUE)component (six-month consultancy);
* assistance in defining specifications of the telecommunications component in order to upgrade andimprove security of existing telecommunications infrastructure as required for proper operation of thenew payment systems and international tender preparation for the supply of relevant technical systems(three-month consultancy).
Evaluation and monitoring of results:* implementation of baseline and follow-up surveys intended to monitor impact of new payment systems
on end-users (businesses, general population, government).
E-money:* feasibility study regarding the implementation of a system based on the use of e-money or smart-card
technology, e.g. for self monitoring consumption and payment of public utility charges (electricity,water, transportation, health, etc.) by consumers, including low-income households who do not havebank accounts.
The BCEAO will cover all other operating expenses (staff, overhead, logistics) required for projectimplementation.
Project Component 2 - US$2.50 millionReal-Time Gross Settlement System (RTGS): US$ 2.5 million(IIDA US$2.00 M; BCEAO US$0.3 M, Banks and financial institutions US$0.2 M)
The main objectives of the sub-regional RTGS system are:
* to reduce risks associated with operations involving large value or urgent payments and risk ofsystemic contagion caused by the failure of a participant due to a lack of liquidity at the time ofsettlement. Without RTGS, settlement may occur at the end of the day, for example, and maycompromise the entire day's clearing operations, leading to a risk of systemic failure.
* to ensure speed, completion and security of funds transfers throughout the sub-region, in accordanceBIS Payment System's Core Principal recommendations,
* to foster the development of financial markets in the sub-region.
On the basis of procedures implemented within the RTGS system, large value payments, or those deemed
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to be critical or urgent on behalf of clients or between banks (especially payments related to financialmarkets, monetary policy operations, and settlement of clearinghouse operations), are final and processedin real time by means of simultaneous debiting and crediting of participants' accounts held on BCEAO'sbooks.
The RTGS system is installed at BCEAO headquarters (with a back-up site), and technical platforms(including software and hardware) are installed at the headquarters of each participant. The systemincludes in particular the following modules: transaction monitoring, management of settlement accounts,management of transactions queues, exchange of infornation with participants, and intraday liquiditymanagement.
Three types of participation in the RTGS system are envisaged:
* Direct participants. who have installed the above-mentioned platformn within their own establishmentand who benefit from real-time and direct communication with the RTGS system;
* Indirect participants. who have not installed a platform in their own institution and instead use thetechnical platform installed within the main BCEAO branch in each country (or the technical platfortnof another direct participant);
* Sub-participants, who entrust the processing of their operations to another establishment which is adirect (or indirect) participant. In this case, the sub-participants do not have settlement accounts inBCEAO's books. A direct (or indirect) participant represents them and assumes financial and liquidityrisks associated with these operations.
The architecture of the RTGS system is composed of three levels:
_ A technical platform, installed at the headquarters of each direct participant or, for indirect participantsand BCEAO departments, at BCEAO national branches and headquarters. About 50 access points areenvisaged.
* A system of connection and transfer between these platforms and the central RTGS system, either viathe "transfer service" already offered in its own network by BCEAO, or by using a service based onSWIFT FIN Service, or a combination of the two (e.g., SWIFT for financial transactions, andBCEAO's internal network for exchanges of information) in order to reduce operating costs;
* The central system (the heart of the RTGS) including in particular the modules for processingtransactions, liquidity management, management of queued-up transactions, settlement, and exchangeof information with participants.
The studies accompanying the preparation of detailed specifications, which are to result in an intemational tenderfor the whole system, will identify the technical solutions to be implemented.
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The following diagram shows the architecture of the RTGS in a simplified form:
Financial Institution Financial Institution Financial Institution
"Issuer" Indirect Participant "Beneficiary"A AA
Participant's Platform |-- -. Participant's Platform
BCEAO
Financial nNational Branch Finncialorder BCEAO Platform transfer
Information
NETWORKSERVICES: BCEAO Transfers /SWIFT FIN service
Core RTGS BCEAO HQ
Transaction Checking and Exchange Process
Checking and Management of Liquidity
Queuing and Optimization processing
Settlement of transaction in Settlement Account
BCEAO internal informaTion system
General Accounting ( general ledger)
Government Securities Management
Fiduciary Deposits and withdrawals Management
CFAF coverage of foreign exchange operations
In order to carry out the RTGS project, a small project team, led by a project head with, if required, thehelp of a full-time consultant for the duration of the project (i.e., about 18 months) will be set up within theBCEAO.
MRSMP BCEAO (HQ) lExpert CommitteelSub-Committee RTGS
Sub project team RTGS|
Representatives of Committee of Experts
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- Project head- External consultant (if required)- Other consultants/experts- (Supplier's team)
A technical sub-committee will be put in charge of monitoring and facilitating, at the sub-regional level, thedevelopment and implementation of the RTGS system, especially within financial institutions.
IDA will finance:
* Detailed studies and preparation of specifications (cf. Component 1);* Full-time assistance (if required) to the head of the RTGS component (18 months of local or
international consultant services);* Meetings of the RTGS technical sub-committee;* The external development and supply of the RTGS application software system;* BCEAO's hardware equipment platform.
The BCEAO will finance other operating costs associated with the RTGS component, required adaptationsto BCEAO's internal information systems, testing and acceptance procedures.
Financial institutions (direct participants) will finance investment and installation costs of the hardwareplatform required to access the RTGS system. This equipment will be supplied as part of the overallRTGS system.
The fees to be paid by financial institutions for services provided by BCEAO, which is responsible foroperating the RTGS system, will vary depending on mode of participation and volume of operations.Simulations performed by the consultant at the time of the feasibility study show that, given anticipatedvolumes, cost per operation should be acceptable to participants. However, revised cost and billingstructures will be defined during the project implementation phase after completion of the bidding process.
Project Component 3 - US$ 4.10 millionClearing System (COMPENS): US$ 4.1 million(IDA US$2.1 M; BCEAO US$1.4 M, Banks and financial institutions US$0.6 M)
The clearing system has the following main objectives:
* to shorten the time required for clearing checks or other paper transactions (both within and betweenmember states). When transactions are "out of station" or "off-site", delay should be reduced fromseveral weeks to three days;
* to reduce the risks and costs associated with delays and with manual procedures for handling andtransporting paper instruments;
* to promote and make possible the development and automation of new electronic payment instruments;
* to reduce the need for cash balances to cover clearing operations, by centralizing the accounts offinancial institutions held at the BCEAO at the national level, thereby eliminating the need to maintaincredit positions at each local BCEAO branch for clearing operations.
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The principles underlying the new clearing and settlement system are as follows:
* each financial institution branch presents, in the form of electronic data, payment transactions (checks,notes, transfers, debits, card transactions, etc.) for which clearing and settlement is required;
* this presentation may involve three types of transactions: in-city, in-country, or inter-country (withinthe region);
* in the case of paper instruments (checks and notes), a digitized image is attached to the clearing data inorder to facilitate control procedures by the payor institution (e.g. verification of signature);
* these electronic files are transmitted by the payees' financial institution branch (electronically or ondiskette) to the nearest BCEAO access point (local or national branches);
* BCEAO's access point transfers these files to the national clearinghouse system installed at BCEAO'snational branches (one per country);
* upon receipt of these files, at a specified cut-off time, an electronic clearing process is completed at thenational level to calculate balances of each participant, with value dates assigned according totransaction categories (for example: D (clearing date) for "in-city", D+2 for "in-country", D+3 for"inter-country"). These dates have to be agreed and reduced progressively as technical improvements areachieved within financial institutions;
_ each participant is informed of the overall balance that results from the clearing session and shouldensure that the balance (if it is in a debit position) to be posted in his BCEAO settlement account willbe covered when the settlement occurs about one hour later (in the RTGS system);
* in the case of insufficient funds, all clearing balances are temporarily rejected and clearing houseparticipants and management will invoke the established rules (coverage, injection of liquidity,guarantees, etc.) so that all debit balances will be covered and settlement can occur upon a secondpresentation to the RTGS system;
* once settlement has occurred (or before for information purposes), the paying banks receive all relevantfiles (clearing data and images) that allow them to monitor transactions in order to accept or rejectthem;
* Rejected operations are presented again at a new clearing session, within a timeframe to be agreedbased on the quality and rapidity of the transfer and the processing of the images of the paperinstruments by the paying bank;
* Studies are underway to define detailed procedures for payment and delivery of securities.
For archiving purposes as well as to constitute evidence in the event of a claim by a client or a financialinstitution, paper instruments are transferred, separately from electronic transactions and via appropriatecircuits, from the receiving bank to the payor bank. An exchange window, which is a simple letter box, ismade available to payors and payees at BCEAO's local and main offices.
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The system can be represented in simplified form by the following Diagram:
|Beneficiary bank || Bac ee aosBn i|Beneficiary ban k Brnc lee avr
t | ~~~~~~~~PavorBn
Local windowAccess clearing point
BCEAO (local or national branch) r inhIi merts
BCEAO National Branch Coutry levelElectronic____________________________________Clearin th
of a t slearinoe (alan b 1 m nonmt)iw
MRM E BhElOllHQ BCEEe CommiteeEHQ I lQ
In order to carry out the clearing component, a small team, led by a project head with the help, if required,of a full-time consultant for the duration of the project (about 12 months) will be set up within BCEAO.
MRSMP BCEAO (HQ ) xetComte
Sub project team CLEARING Sub-CommitteeCLEARING
Representatives of the Committee of Experts- Project head- Full-time consultant (if required)- Other consultants- (Supplier's team)
At the sub-regional level, a technical sub-committee will be in charge of monitoring and facilitating thedevelopment and implementation of the clearing system, particularly within participating financialinstitutions.
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IDA will finance:
* detailed studies and preparation of specifications (cf. Component 1);
* full-time assistance (if required) to the head of the COMPENS sub-project, for a total of 12 months oflocal or international consultant time;
* Meetings of the COMPENS technical sub-committee;
* external development and supply of the system (software);
* Fifty percent of the cost of BCEAO's platform servers.
The BCEAO covers other operating costs of the sub-project, adaptation of its internal information system,testing and acceptance procedures, and fifty percent of the cost of the hardware platform for its nationalbranches.
Financial institutions that are members of the clearing network will finance equipment and software for thedigitization of paper payment instruments (checks, letters of exchanges), and file transfer mechanisms.Equipment for digitizing paper instruments may be pooled on a cost sharing basis between the BCEAO andthe banks.
Project Component 4 - US$4.50 millionInterbank Card System (MONETIQUE): US$4.5 million(EDA US$03 M; BCEAO US$0.1 M, Banks and financial institutions US$4.1)
The main objectives of setting up an interbank card system at the level of WAEMU are the following:
* to strengthen the consistency and the image of the sub-region's financial sector by creating a WAEMUcard logo, which would be displayed on individual cards and would be promoted by joint advertisingcampaigns;
* to promote the use of electronic payment instruments to replace cash;
* to strengthen the position and bargaining power of sub-regional card issuers vis-a-vis international cardnetworks (such as VISA, MasterCard, etc.);
* to reduce commissions and transaction processing costs, i.e., acquisition, transfers, authorization,settlement, by optimizing the required technical infrastructure (equipment, networks and software), forthe benefit of banks in the sub-region;
* to control risks (fraud) associated with electronic payments.
Two distinct approaches should be considered:
* the establishment of an entity in charge of overall coordination and strategic decision-making on behalfof all members of the interbank arrangement: global business strategy, legal rules, determination of
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interbank commissions, operating procedures, certification, technical standards ensuring multilateralcompatibility of systems, etc.
* operational management and control of common technical infrastructure in order to reduce costs andensure the quality of products and services offered, while at the same time controlling the risksassociated with this activity for both participant banks and clients.
The creation of a Regional Electronic Banking Center (CMR) has been agreed. This Center will be directlyresponsible for oversight and cooperation activities, but it would delegate, insofar as possible, operationalactivities to one or several specialized subcontractors, in order to minimize costs and guarantee that thebest quality of service is provided to all card users (cardholders, merchants and banks).
Customer relations will remain the exclusive responsibility of banks in order to ensure real competition.General conditions and standard contracts will be developed by the CMR, but each bank will remain free todetermine the conditions (i.e., fees and levels of service) it will grant its own customers. A minimum levelof interbank service (customer's obligations and rights) will, however, need to be defined in order to: i) givea concrete meaning to sub-regional interbank services for clients; and ii) conduct efficient promotionalcampaigns.
Due to the commercial nature of the card component, the financing will be provided primarily by theprivate banking community. Ultimately, the success or failure of this component will depend to a verylarge degree on their efforts in marketing the product. The establishment of interbank arrangementsrequires legal, economic and technical analyses, some of which are to be financed under the IDA credit.
Studies conducted by the consultant during the feasibility study served to define basic operating principlesand schemes for the bank card component. Consultant's proposals are now being analyzed in more detailby specialized sub-committees created in April 2000 within the eight national CCPs.
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A description of the general operating principles is presented below.
Functional Scheme (authorization)
Electronic terminals of merchants Automatic Teller Machines
Banks may, as they wish,either have their terninalslinked up to their own
Transaction Acquisition Centers installatons or to those of ak C cononn center.
Baniks r I Common center(s)_
......... . ......... ... l nternationaI authorization |r t fl r / ............. 41 ~~~~~centrs:
Banks may, as they wish, Authorization center Common authorizationeither have their of issuing bank centerauthorizations processed (by delegation)out of their owninstallations orfromthose of a common
L center.
Collection of transactions:
The choice is open, with regard to the process of remote collection of transactions from POS equipment,between the use of a bank's own centers (for its merchants) or one or several common centers. (Remotecollection is most often done in late evening or during the night.) After collection and verification by theacquiring center (bank or common), inter-bank card transaction files will be prepared for further clearingand settlement.
Clearing:
Interbank card operations are incorporated into payment transactions files remitted to local access pointsfor low value payments (see clearing system described above); however, these remittances will probably becentralized in each country in BCEAO's main national branch.
Personalization of cards:
It would be desirable to centralize equipment and the corresponding processing, in order to ensure anadequate level of security, and particularly in order to obtain certification from the international cardnetworks (such as VISA, MasterCard, etc.) and expected economies of scale.
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Certification of merchants' terminals:
To ensure the required quality of card operations, POS terminals, whether installed by banks or by acommon service provider, will need to be pre-certified in accordance with procedures set out by the CMR.Installation and maintenance of these POS terminals may be sub-contracted to common entities.
Each functional and technical element of the system's architecture (card production and personalization,authorization centers, acquiring centers, risk management systems, remote transaction collection, POS andATM management, etc.) will be the subject of detailed specifications. International bidding will beconducted to find the optimal technical solutions (for common equipment and systems) and provider(s) ableto provide the management of the systems and quality service at a competitive cost. The architecture willhave to be flexible in order to accommodate future growth in transaction volumes.
Benefits expected from the establishment of the interbanking arrangements described above will beanalyzed in more detail by an independent consultant in order to identify economic and technical conditionsrequired to ensure the profitability of this approach.
IDA will finance:
* detailed studies and preparation of specifications (international consultant: 6 months);
* full-time assistance (if required) to the head of the sub-project, for a total of 24 months of local orinternational consultant's time; and
* Meetings of the technical sub-committee of the component.
Project Component 5 - US$2.80 millionTelecommunication Systenm US$2.8 million(IDA US$1.5 M; BCEAO US$0.7 M, banks and financial institutions US$0.6 M)
The actual installation of the three systems mentioned above depends on a high-quality and efficienttelecommunications network at the regional level. The network architecture to be put in place must havethe following characteristics:
* high capacity, with the possibility of expansion, in order to handle a volume of traffic that may increaserapidly;
* a high degree of availability;
* reliability, integrity and confidentiality of financial data;
* uniform high quality of service at all access points in the network; and
* optimized cost.
Telecommunications providers and networks in the sub-region are not always adequate and theinterconnections between national networks among member states are inadequate. Therefore, with the
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objective of interconnecting its 25 sites for its own requirements, BCEAO has set up and operated its ownprivate satellite telecommunications network since January 1999.
New communication services are required to serve the new payment system infrastructure, and the existingnetwork infrastructure needs to be upgraded. A component to upgrade the telecommunicationsinfrastructure has therefore been included in the project.
The communications system component of the project has two sub-components:
* the "back bone" sub-regional network, that is based upon the existing private VSAT network;
* in each capital city, the construction of an interbank network connected to the sub-regional network.
Telecommunication Infrastructure
BCEAO's Satellite network
, t | ~~~Comme`rci-al Banks HQ_
LRCsEAO | *'4 1 i
Capital City radio loop
1. Sub-regional satellite network (back bone)
The implementation of the sub-regional network has the following objectives:
* to strengthen the capacity of BCEAO's internal network in order to bear the increased inter-countrytraffic that will result from the introduction of the new payment systems.
* to take into account the banking community's training requirements and offer distance learningfacilities.
To interconnect its 25 sites, the BCEAO has set up a private VSAT satellite telecommunications networkacquired through international competitive bidding from the market leader, for a total cost of US$2.9million. The network is star-shaped, with a central hub equipped with a 7.3 meter antenna installed atBCEAO headquarters and VSAT stations at remote sites. This architecture facilitates centralizedadministration, with the central hub handling system configuration and monitoring network activity.
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The project will produce an increase in the global capacity of this infrastructure and add avideoconferencing service to facilitate training.
2. National interbank network
The plan is to install, in each member state's capital city, a local radio loop for in-country interbankexchanges. All main offices of participating banks and financial institutions will be linked by radio to thenational BCEAO branch in the relevant country. This is critical for real time transactions from commercialbanks' headquarters and BCEAO's national branches.
The radio loop offers clear-cut advantages, including flexibility, ease of deployment and maintenance, andvery competitive operating costs.
Indeed, in order to handle heavy transmission traffic, the radio loop configuration requires only theinstallation of an omnidirectional antenna at the national BCEAO branch and unidirectional antennae atheadquarters of individual banks. However, this technology may require that relay antennae be installed inheavily built-up areas.
For the sub-regional network sub-component, the increase in load will require extension cards and otherequipment from the same supplier that is compatible with current installations. For videoconferencing, theexisting installation can be upgraded by installing the InTELEconference option that uses antennae alreadyinstalled at BCEAO sites, thus optimizing the use of the space satellite bandwidth. The above equipmentwill be procured from the same supplier on a sole source procurement basis.
Videoconferencing terminals, as well as local radio loops, will be procured through internationalcompetitive bidding.
To carry out this project, an internal BCEAO team has been created. In collaboration with banks andWorld Bank specialists for distance learning facilities, the team will conduct preliminary studies and drawup specifications. It will conduct bidding procedures, and monitor the execution of contracts.
IDA will finance:
* detailed studies and preparation of specifications (consultant: 3 months);
* BCEAO's satellite telecommunications system upgrade for the sub-regional network;
* BCEAO's videoconferencing system upgrade for distance training within the sub-region.
BCEAO will finance the radio communication systems to be installed in its main offices under the localradio loop sub-component and the operating costs of the communication sub-project, including the rental ofspace satellite bandwidth from Intelsat.
The participating financial institutions will cover the cost of the acquisition and installation oftelecommunications terminals supplied under the "local radio loop" sub-component.
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Annex 3: Estimated Project CostsAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Local For.gnTtlPioj;ct Cost y rn C mpiont US Siliond US $mi US miion
1. Overall project support and management 1.27 1.33 2.602. RTGS 0.23 2.24 2.473. Low Value System 0.99 3.06 4.054. Card System 0.54 3.91 4.455. Telecoms 0.00 2.76 2.766. PPF 0.00 1.30 1.30Total Baseline Cost 3.03 14.60 17.63Physical Contingencies 0.00Price Contingencies 0.30 1.33 1.63
Total Project Costs 3.33 15.93 19.26Total Financing Required 3.33 15.93 19.26
La01I Foreign TotalProj9ct Cost 0 y Category US $million US $Amillion US $milfion
Goods 0.00 10.74 10.740.00
Services 0.86 1.04 1.90Training 0.00 0.29 0.29Operating Costs 2.17 1.23 3.40PPF 1.30 1.30Unallocated 0.30 1.33 1.63
Total Project Costs 3.33 15.93 19.26Total Financing Required 3.33 15.93 19.26
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Annex 4: Cost Effectiveness Analysis SummaryAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Economists typically analyze the benefits of an efficient payment system from two perspectives. At themacroeconomic level, they assess the relationship between the efficiency of the system (reflected in thevelocity of the circulation of money) and the money supply for a given level of economic activity. On themicroeconomic level, their concern is with welfare losses that result from transaction costs associated withpayment systems.
While this project's benefits are quite difficult to quantify with any degree of precision, the following pointsshould help in assessing the cost effectiveness of the project:
Summary of benefits and costs:
There are significant macroeconomic and microeconomic benefits to developing efficient payment systemsin the WAEMU.
1. Promotion of economic activity. Payment systems promote economic activity, particularly commerceand trade (both domestic and international). Without reliable and efficient payment mechanisms,companies have difficulty acquiring raw materials and supplies, paying wages, and receiving payment fordelivery of goods and services. Funds which are tied up in clearing and settlement are not available formore productive uses. Furthermore, a reliable and efficient payment system is a prerequisite for economicplayers to switch progressively from the informal economy, and risks associated with it, versus the use offinancial sector services. The trend toward using more official payment infrastructure and less informaleconomy will have an impact on tax collection due to a better transparency of exchanges.
2. Improved monetary policy. Large and unpredictable levels of float influence short-terrn liquidity inthe economy and create uncertainty in controlling monetary aggregates. The ability of the BCEAO tomanage the global liquidity of the financial sector in real time and adjust reserve requirements efficientlyand use indirect policy instruments through open market operations depends on a more reliable regionalpayment system.
3. Financial sector development. Efficient payments systems facilitate the development of new financialinstruments, products and markets, such as debt and equity markets. In WAEMU, the current inefficientand unreliable payment system represents an obstacle to efforts to develop a regional capital market andgovernment securities market. Improved payments should also lead to increased competition, betterservice, and lower transaction costs in financial institutions and enable them to develop new products andsources of fee income (card services, bank remittances).
4. Improved efficiency and cash management. The current payment system in WAEMU does not allowbanks or companies to manage their treasury operations efficiently. For example, branches of banks in theregion must now maintain liquidity in numerous accounts with correspondents or local BCEAO offices andcannot compensate for deficiencies in one branch with excess liquidity in another. A unique and centralizedsettlement account hold in BCEAO's books will allow better treasury management by financial institutions.
5. Regional integration. Despite the existence of monetary union in the region since independence,markets remain fragmented and progress towards effective economic and financial integration has beenslow. Significant uncertainty and delays for intra-regional payments represent a significant obstacle to the
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development of intra-regional trade. Given the small size of the economies of WAEMU member states,increased integration is a pre-requisite to improving economic efficiency and achieving economies of scale.The sub-regional dimension of the project in its various components will strengthen the image of the region.
6. Credit risk management. Lengthy and unreliable payments systems creates credit risk between the twoparties to the transaction, between their two banks, and possibly between the Central Bank and one ormore banks in the system. A modem payment system such as the one proposed by the BCEAO minimizesthese risks.
7. Systemic risk: One key objective of modem payment systems is to mitigate the risk that a failure of asingle financial institution puts at risk the entire sector by a domino effect: this may happen when clearingand settlement mechanism allows that at the end of the day a large debit position of one participant cannotbe covered and all transactions of this participant have to be reversed. The architecture of BCEAO'spayment system through the protection of bulk transaction netting systems and the RTGS used forsettlement of large value transactions is designed in compliance with the BIS payment systems coreprincipals addressing this issue.
Cost-effectiveness indicators:The design of an efficient payment system should guarantee the lowest cost to all parties subject toappropriate standards on speed, certainty, reliability, safety and convenience and not just the lowest costsystem available. These competing considerations often lead to multiple systems to respond to differenttransaction requirements. A system for handling time critical, high value payment requires greater speedand security (at a higher cost) than a system for handling bill payments or small checks.
Based on an analysis of requirements in the WAEMU region, and in consultation with the financialcommunity and end-users, the proposed three-pronged payment system (RTGS, low-value, and inter-bankcard components) was deemed to be the most cost-effective strategy. The active participation of privatecommercial banks in the design and implementation of the system should also help ensure a cost effectivesolution, as banks ultimately will bear most of the cost of the system, either through up-front investment orthrough user fees based on full cost recovery.
The proposed costs for the various components are in line with costs of similar on-going payment systemprojects in other emerging countries (Mauritius, Moldova, Estonia), and are in fact lower than they wouldhave been a few years ago as costs for payment system technology have been declining. The regionalapproach adopted in this project further enhances cost effectiveness, as a number of smaller nationalpayment systems would have been significantly more costly.
The choice of an electronic clearing and settlement process. is a guarantee that the system will be able torespond to modernization of commercial banks' operations and networks. Electronic banking operationswould be introduced as a standard type of operation in the future without the need to modify the design andarchitecture of the proposed systems.
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Annex 5: Financial Summary
AFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Years Ending
| Year I Year 2 | Year 3 Year 4 Year 5 | Year 6 Year 7Total Financing Required
Project CostsInvestment Costs 2.3 10.1 2.5 1.0Recurrent Costs 0.3 0.5 1.2 1.4
Total Project Costs 2.6 10.6 3.7 2.4 0.0 0.0 0.0Total Financing 2.6 10.6 3.7 2.4 0.0 0.0 0.0
FinancingIBRDIIDA 2.2 5.8 1.3 0.1Government 0.3 1.4 0.9 1.2
Central 0.0 0.0 0.0 0.0Provincial
Co-financiersUser FeeslBeneficiaries 0.1 3.4 1.5 1.1Others
Total Project Financing 2.6 10.6 3.7 2.4 0.0 0.0 0.0
Main assumptions:
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Annex 6: Procurement and Disbursement ArrangementsAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Procurement
General
1. A Procurement Assessment Review for BCEAO was carried out in June 2000 showing thatprocurement procedures in BCEAO do not conflict with Bank guidelines. No special exceptions, permits,or licenses need to be specified in the Credit documents for International Competitive Bidding (ICB), sinceBCEAO's procurement practices allow IDA procedures to take precedence over any contrary provisions inits regulations.
2. Goods financed by IDA will be procured in accordance with Bank's Guidelines under IBRD Loansand IDA Credits (January 1995 revised in January and August 1996, September 1997, and January 1999),and Bank Standard Bidding Documents, and Standard Evaluation Report will be used for ICB. One solesource procurement will be used for the purchase of the upgrade of the existing satellite communicationnetwork built by BCEAO.
3. Consultant Services financed under the credit will be procured in accordance with the Bank'sGuidelines for the Selection of Consultants by World Bank Borrowers (January 1997 revised in September1997, and January 1999). The standard Request for Proposal, as developed by the Bank, will be used forappointment of consultants. Simplified contracts will be used for short-term assignments, i.e. those notexceeding six months, carried out by firms or individual consultants. The BCEAO staff will be briefedduring appraisal and will receive any additional clarification during negotiations about the features of theConsultants Guidelines, in particular with regards to advertisement and bid opening.
4. A General Procurement Notice (GPN) has been prepared and issued in the June 30, 2000 UnitedNations Development Business to advertise for major consulting assignments and any ICB. The programelements by disbursement category, their estimated costs, and procurement methods are summarized inTable A below. Thresholds for procurement methods and prior review are summarized in Table B below.
Goods
5. A large volume of activities financed under the credit (US$5.8 million) will be used to procuregoods (hardware and business application software) under ICB, IS or NS, and sole source procedures.
6. For some of the material and equipment to be financed under the telecommunications component (5),BCEAO is requesting sole-sourcing as the procurement method to be utilized. Due to inadequatetelecommunications in the region, in 1999 BCEAO set up and began operating its own private VSATsatellite telecommunications network to connect its 25 offices. As a modern payment system requiresreliable and secure telecommunications, this private network will be utilized by the financial community toeffect payments. The incorporation of this network into the project will require upgrading the system andincreasing its load capacity. The existing network was acquired through international competitive biddingfrom the market leader, at a cost of US$2.9 million. It will be necessary to acquire the expansion electroniccards and other material required for the project from the same supplier at a cost of approximately US$1.4million. Other materials for the telecoms component will be procured through international competitivebidding.
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Consultant Services
7. Consulting services financed under the credit would be for: (i) studies, preparation of biddingdocuments, accounting systems, financial management support, and financial audits; and (ii) technicalassistance and consultancies on technical matters and training--skills gap analysis and skills development.Consultants financed by IDA, totaling US$2.3 million, would be hired in accordance with the Bank'sGuidelines for the Selection and Employment of Consultants (January 1997 revised in September 1997,and January 1999). Selection would be based on competition among qualified short-listed firms throughQuality-and Cost-Based Selection by evaluating the quality of the proposals before combining quality andcost evaluation by weighting and adding the quality and cost scores. The Project Unit (MRSMP) wouldensure widely publicized procurement notices to get candidacies from consultants. Based on agreed uponcriteria, the MRSMP will maintain and update a list of consultants which will be used to establishshort-lists.
8. Other methods would also apply. For audits and other services of a standard nature not exceeding$50,000, up to an aggregate amount of US$200,000, the Least-Cost Selection would be the mostappropriate method -- the firm with the lowest price being selected provided its technical proposal receivedthe minimum qualifying mark.
9. Consultants services for small and simple services, for small studies and technical assistance (forcontracts not exceeding US$50,000 and up to an aggregate amount of US$1.1 million) would be based onConsultants' Qualifications, based on the consultants' experience and competence relevant to theassignment.
10. Services for small studies and technical assistance which can be delivered by individuals, may beselected through comparison of qualifications among Individual Consultants expressing interest in theassignment or approached directly.
IDA Reviews
11. Contracts financed by IDA above the threshold value of US$100,000 equivalent for goods will besubject to IDA's prior review procedures. The review process would cover about 65% of the contractamounts for goods and consultants (see Table B below). Selective post-review of contracts awarded belowthe threshold level will apply to about one in three contracts and will be carried out by Bank staff, usingaudits, and other consultants, as necessary.
12. Bank staff will also review the selection process for the hiring of consultants proposed by theBorrower. Prior IDA review for the selection of consultants will include the review of budgets, short-lists,selection procedures, requests for proposals, evaluation reports, contract awards, and negotiated contracts.Prior IDA review will not apply to contracts for the recruitment of consulting firms and individualsestimated to cost less than US$100,000 and US$50,000 equivalent, respectively. However, the exceptionto prior IDA review will not apply to the Terms of Reference of such contracts, regardless of their value, tosingle-source hiring, to assignments of a critical nature as determnined by IDA, or to amendments ofcontracts raising the contract value above the above-mentioned prior review thresholds.
13. Documents related to procurement below the prior review thresholds will be maintained by theborrowers for ex-post review by auditors and by IDA supervision missions.
14. For training abroad and in-country, the program (containing names of candidates, costs estimates,
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content of courses, periods of training and selection of training institutions) will be reviewed by IDAannually.
15. Frequency of procurement supervision missions proposed: one supervision mission every sixmonths will include special procurement supervision for post-review/audits.
16. Modification or waiver of the scope and conditions of contracts. Before agreeing to any materialextension, or any modification or waiver of the conditions of contracts that would increase aggregate costby more than 15% of the original price, the Borrower should specify the reasons thereof and seek IDA'sprior no-objection for the proposed modification.
Procurement Status of Ongoing Projects and Proposed Arrangements
17. The MRSMP, the project unit of BCEAO in charge of the project, would be entrusted withprocessing all procurement services as defined in the project's Manual of Procedures.
Procedures Manuals
18. A procedures manual acceptable to IDA will be established as a condition of effectiveness. TheProject's procedures manual and internal organization would include, inter alia: (i) procedures for callingfor bids, consultants, and vendors, and awarding contracts; and (ii) disbursement procedures. The Manualof Procedures will be submitted to IDA for approval prior to credit effectiveness.
19. Payment to Contractors. The BCEAO has agreed with IDA in principle to open a special accountin its books.
20. Prior to effectiveness, the BCEAO will submit and agree with IDA on: (a) a draft procurementplan for the first year; (completed) and (b) the Manual of Procedures. The BCEAO will also giveassurances that it will: (a) use the procedures manual; (b) use the Bank's Standard Bidding Documents forICB, the Standard Request for Proposals for the selection of consultants, and the Standard Bid Evaluationreports; (c) apply the procurement procedures and arrangements outlined above; (d) update theprocurement plan /indicating compliance with aggregate limits on specified methods of procurement,revised cost estimates for individual contracts and the total program, including best estimates of allowancesfor contingencies, as well as revised timing of estimated procurement actions on a regular basis to comparetarget times and actual completion, and transmit it to IDA, during implementation, with allprocurement-related documents; and (e) carry out, during quarterly reviews, an assessment of theeffectiveness of bidding procedures and performance, as they relate to the program's procurementexperience, and propose for IDA any modification to the current procedures to the extent that wouldaccelerate procurement, while still maintaining compliance with the Bank's Procurement Guidelines andadequate control over contract awards and payments.
21. The BCEAO will take the necessary measures to ensure that procurement phases do not exceed thefollowing target time periods:
Procurement Phases Maximum number of weeks
Preparation of bidding documents 4
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Preparation of bids by bidders 4
Bid evaluation 4
Signature of contracts 4
Payments 4
Procurement methods (Table A)
Table A: Project Costs by Procurement Arrangements(US$ million equivalent)
Procurement Method'Expenditure Category ICB NCB Other B. Total
1. Works 0.00() () () () (0.00)
2. Goods 5.70 0.50 1.50 4.10 11.80(3.90) (0.50) (1.50) (0.00) (5.90)
3. Services 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)
4. Miscellaneous 0.00 0.00 3.70 0.00 3.70(0.00) (0.00) (0.00) (0.00) (0.00)
5. p.m. PPF 0.00 0.00 1.30 0.00 1.30(0.00) (0.00) (1.30) (0.00) (1.30)
Total 5.70 0.50 6.50 4.10 16.80(3.90) (0.50) (2.80) (0.00) (7.20)
' Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies2/
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Table Al: Consultant Selection Arrangements (optional)(US$ million equivalent)
E-t0xpenjdi;00tur QBs QBS SFB WS CQo thier N.&. Totl Cost
A. Firms 0.60 0.00 0.00 0.20 0.00 0.50 0.00 1.30(0.60) (0.00) (0.00) (0.00) (0.00) (0.50) (0.00) (I. 1 0)
B. Individuals 0.00 0.00 0.00 0.00 1.10 0.00 0.00 1.10(0.00) (0.00) (0.00) (0.00) (I. I0) (.00) (0.00) (I.10)
Total 0.60 0.00 0.00 0.20 1.10 0.50 0.00 2.40(0.60) (0.00) (0.00) (0.00) (1.10) (0.50) (0.00) (2.20)
1\ Including contingencies
Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines),Commercial Practices, etc.
N.B.F. = Not Bank-financedFigures in parenthesis are the amounts to be financed by the Bank Credit.
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Prior review thresholds (Table B)
Table B: Thresholds for Procurement Methods and Prior Review'
Contract value Contracts Subject toThreshold Procurement Prior Review
Expenditure Category (US$ thousands) Method (US$ millions)1. Works
2. Goods $100,000 and above ICB All contracts exceeding$100,000 threshold
under $100,000 LCB & National Shopping ($7.0M)3. Services4.Consultants/training $100,000 and above QCBS + short list TOR, short-lists, draft
contracts, and selectionreports; ($1.1 M)
$50,000 to 100,000 QBS TOR ($0.3M)under $50,000 CQ
5. RoutinelStandard Less than $50,000 Least Costcontracts Miscellaneous6.Miscellaneous All DC $1 .4M(telecom equip.)
Total value of contracts subject to prior review: US$8.05 million
Overall Procurement Risk Assessment
Low
Frequency of procurement supervision missions proposed: One every 6 months (includes specialprocurement supervision for post-review/audits)
Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.
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Disbursement
Allocation of credit proceeds (Table C)
Table C: Allocation of Credit Proceeds
1enditure Category Amount in US$mlflon Financing PeorcenMaterials and equipment 5.20 100%Consultants 1.90 100%Training 0.29 100%PPF 1.30 Amount DueUnallocated 0.74
Total Project Costs 9.43
Total 9.43
NB: BCEAO is exempt from all taxes and duties in Member states
Financial Management Arrangements
General
I . A financial management system, acceptable to IDA, will be established for the Payment SystemProject. The financial management system will provide accurate and timely information regarding resourcesand expenditures. It will include accounting, financial reporting and auditing elements as well asprocurement monitoring. As required by Bank's policies and procedures (OP/BP 10.02), a financialmanagement specialist was involved in the project from the preparation stage to ensure that financialmanagement requirements are correctly addressed. This involved an assessment of the project's financialmanagement capacity to identify any need of improvement in order to fully comply with Bank'srequirements and project's needs. Based on the results of this assessment, the arrangements for the project's financial management were defined with the client along with a detailed action plan (see table below) toensure that a sound financial management system would be in place by credit effectiveness at the latest.
Financial Management Capacity Assessment
2. Implementation arrangements: The project implementation over four years would be coordinatedby a special unit created within BCEAO composed of staff from existing departments assigned to thespecial unit for the duration of the project with the assistance from specialized consultants (the MRSMP).With regards to the project's financial management system, it was envisaged to develop it as a subsystemof BCEAO's main accounting system or as a separate system. Both options were examined and theseparate system was chosen for reasons detailed in the assessment hereafter.
3. Organization of the accounting function: BCEAO's accounting system is under the responsibilityof the Accounting and Budget Department composed of the following units: Headquarters accounts unit,Central accounts unit, Budget unit. The Headquarters accounts unit ensures the control and the posting ofall transactions related to the headquarters accounts. It prepares the headquarters financial statements anddefines accounts' balances to be consolidated by the Central accounts unit in the overall financialstatements. The mission of the Central accounts unit is to consolidate financial information from BCEAO's
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national branches and from the headquarters in view of presenting consolidated financial statements. TheBudget unit has the responsibility for the preparation and implementation and monitoring of theheadquarters' budget. It also ensures the consolidation of the national branches' draft budgets beforepresentation to the Board of Directors for approval.
4. Description of the existing accounting system: According to BCEAO's statutes, the accountingoperations are posted with respect to commercial and banking practices. BCEAO accounts are kept asdescribed in the Accounting Manual composed of five volumes which deal with the following aspects: i)general accounting principles; ii) the chart of accounts, accounting entries posting and approvalprocedures; iii) entries treatment for each type of accounting transaction; iv) mechanisms for transactions'approval and control of accounts reports. The accounting system is decentralized. Transactions are initiatedwithin the operational departments where manual entry forms are prepared. After approval by the managersin charge, these forms are transmitted to the Accounting Department accompanied by supportingdocuments for control and processing, including several levels of checks, control and approval of itemsposted before these items are validated into the books of accounts.
5. Consolidated financial information is available from the system every 10 days and monthly. Theannual financial statements are audited by independent audit firms.
6. BCEAO has a computerized double entry accounting system, which is undergoing many changeswithin the framework of the modernization of the information system decided by management in 1997.These changes include a new chart of accounts and revised entry treatment for accounting transactions. Theobjective is to reach compliance with international accounting standards. The new system is expected to bein place around December 2000.
7. Assessment of the project's accounting system: As BCEAO is a well-established institution, thefirst option envisaged was to keep the project's accounts within BCEAO's main accounting system.Implementation of such an option would require some adjustment to ensure that the project's transactionswould be recorded and reported on in detail and scope commensurate with World Bank financialmanagement requirements and the project's information needs. In this respect, all possibilities werediscussed with representatives from BCEAO Accounting and Information Technology departments. Thesepossibilities would include defining an additional set of accounts to the existing chart of accounts to recordseparately transactions related to the project or creating a separate cost center for the project within themain accounting system. The current situation of the accounting system does not allow the creation of aseparate cost center for the purpose of the project's accounting. Creating a separate set of accounts for theproject within the existing accounting system would be difficult to handle. In fact, the current system is notflexible enough to be customized according to the financial information needs of the project such asmonitoring transactions by expenditure categories, project activities, budget planning and implementation,reporting on financial implementation. In other words, the current situation does not allow a sub-system forthe project within the main accounting system to meet the Bank's accounting and financial reportingrequirements and the project's financial information needs.
8. The new system to be put in place should be able to overcome the shortcomings presented above,however its timing is not suitable for the project. Therefore, it was noted that a separate autonomousfinancial management system would be more appropriate for the project for the following reasons. Such anoption would meet both the project's financial information needs as well as the Bank's financialmanagement requirements. Given that this autonomous system for the project does not exist yet, it couldnot be formally assessed at this stage of project preparation. The assessment consists rather in identifyingthe needs to be fulfilled and defining an action plan to show how the implementing entity can develop
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appropriate financial management capacity in order to ensure that an adequate financial managementsystem satisfying Bank's requirements will be in place prior to project effectiveness at the latest. Therefore,the following paragraphs present recommendations to achieve this objective.
Financial Management Arrangements
9. Accounting software: The project would be equipped with a multi-currency accounting softwarecapable of recording and reporting the project's operations by component, sub-component, activity, andexpenditure category, regardless of the origin of funds. The software should also offer a budget planningand monitoring module, a contract monitoring module and a reporting module capable of generating theperiodic project management reports required under the Financial Management Initiative, formerly knownas LACI. Detailed terms of reference for the selection of the accounting software were prepared byBCEAO. They were submitted to and approved by IDA during project preparation. The software shouldbe installed and functioning satisfactorily to IDA prior to effectiveness.
10. Accounting procedures: Besides the accounting software, it is necessary to assess the proceduresthat will be used to implement the project's activities. This is done below. As mentioned above, BCEAOhas detailed procedures presented in a five-volume accounting manual. In addition, several guidelines wereissued to describe specific procedures such as procurement of goods and services, monitoring anddepreciation of fixed assets, posting certain types of transaction, etc. Overall BCEAO procedures aresatisfactory in terms of internal control. Also, as BCEAO is a well-established and respected institution, itwould generally be more appropriate that they use their own procedures to implement the project insofar asthey are satisfactory. However, following discussions with BCEAO staff, it was noted that the existingprocedures could be cumbersome due to the number of people involved in the approval process and the lowlevel of delegation. BCEAO budgetary and accounting procedures include excessive pre-payment measuresand are characterized by insufficient delegated responsibility so that even small payments requireauthorization at a high level of management and must go through a large number of checks and controls.
11. This situation might be inappropriate for the implementation of the project. Therefore, it wasdeemed desirable to have simplified procedures applicable to the project while maintaining internal controlprocedures that would ensure that funds are safeguarded. In fact, while recognizing the need to facilitateproject implementation through simplified procedures, it is also important to avoid dismantling existingchecks and controls without substituting adequate new measures. For this reason, it was agreed duringproject preparation that this concern would be addressed through a manual of accounting procedures to bedeveloped for the project. This manual would be based on existing procedures, which would be simplifiedfor more flexibility and rapidity while respecting the internal control requirements. The manual would betailored to the project's needs. This would include a description of the accounting system: (chart ofaccounts, cost accounting coding, accounting standards to be applied for the project, presentation of mainaccount entries, format of the project's financial statements and other reports including PMR, diaries, filingsystem, etc.), various operational procedures (budget planning and monitoring, procurement, recordingtransactions in the books of accounts, disbursement, reporting, etc.). As the project's expenditures are anintegral part of BCEAO accounts and should be reflected in BCEAO financial statements, the scope of themanual will include coordination mechanisms between the project's and BCEAO central accountingsystems to ensure all project transactions are also posted in BCEAO accounts. The draft manual wassubmitted to IDA for approval prior to negotiations. The adoption of the manual, satisfactory to IDA,is a condition of effectiveness.
12. Financial reporting: Separate financial statements will be prepared for the project. They willcomprise: i) a statement of Source and Application of Funds for the project during the current financialyear and cumulatively since the start of the project, and ii) a balance sheet. These two financial statements
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will be prepared annually. In addition, an agreement was reached during negotiations to submit a quarterlyreport using the PMR (Project management Report) models including financial statements,procurement/contracts schedule and output monitoring, one month after the end of each quarter. BCEAOwill also provide it own annual reports to IDA.
13. Auditing: The financial statements of the project will be audited for each fiscal year by anindependent auditor acceptable to IDA in accordance with standards on auditing also acceptable to IDA.Audit reports of reasonable scope and detail would be submitted to IDA within six months of the end of theaudited period. The auditor will provide an opinion on: i) the project financial statements (statement ofSource and Application of Funds and Balance sheet); ii) the statement of expenditures (SOE); iii) thespecial account (SA).
14. The auditor will also issue a separate management report on Internal Controls and operationalprocedures outlining any recommendations for improving internal accounting controls and operationalprocedures identified as a result of the financial statement audit.
15. As BCEAO financial statements are for each year audited by independent auditors, BCEAO askedduring project preparation whether they could keep the same auditor to audit the project's accounts. IDAshould have no objection to such an option provided that the auditor is acceptable to IDA and the work isdone based on termns of reference approved by IDA. BCEAO is in the process of changing their auditor butthe selection is not finalized yet. If the selected audit firm was not acceptable to IDA, a separate selectionprocess would have to be launched for the audit of the project's accounts. In any case, the appointment ofan auditor acceptable to IDA for the project according to terms of reference satisfactory to IDA is acondition of effectiveness.
16. Accounting staffing: BCEAO has a large number of accounting staff with the requiredqualifications although with limited experience of project accounting. Discussions with representativesfrom the Accounting and Budget Department confirmed that they should have no major difficulty to satisfythe project's accounting requirements. Nevertheless, as the weaknesses identified above regarding theprocedures apply also to the accounting and budget department, the project implementation teamrecommended that a full-time accountant be assigned to the project. This suggestion aims at ensuring thatthe project's accounting is kept up-to-date and provides timely and regular information. The appointmentof the accountant according to terms of reference and qualifications approved by IIDA will be acondition of effectiveness. Depending on workload, BCEAO is considering whether the appointment willbe done by reassigning an accountant from the accounting department to the project or by recruitingsomeone from outside BCEAO. In any case, the work of the accountant will be done under the supervisionof the accounting department as will be detailed in the project manual of procedures to be developed.
Use of the PMR-based disbursement method
Based on the description above, all the tools necessary to prepare quarterly PMR should be in place by thedate of effectiveness. These tools consist of the computerized financial management system and the manualof administrative and accounting procedures. The computerized financial management system will becustomized to the specific needs of the project to allow an automatic generation of the quarterly PMRaccording to the models presented in the LACI Implementation Handbook and Financial ManagementManual (draft version). However given that a new system has to be installed and despite all measuresproposed above to develop appropriate financial management capacity, it is recommended to begin withtraditional disbursement arrangements through a Special Account and SOEs (statements of expenditures).It is expected that after a period of 18 months of project implementation, the project's financialmanagement capacity will be strengthened enough to prepare accurate PMRs that could be used as a basis
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of disbursement as required under Financial Management Initiative (FMI). A new assessment of thefinancial management system will be done by March 31, 2002 to determine compatibility with the FMI andto propose the use of the PMR-based disbursement method or any strengthening action plan necessary tomeet the FMI requirements
Use of statements of expenditures (SOEs):
Disbursements for all expenditures would be against full documentation, except for contracts below thevalue of $100,000 equivalent for goods, $100,000 for consulting firms, and $50,000 for individualconsultants, training, and incremental operating costs for which disbursements would be based onStatements of Expenditures (SOE's). Supporting documentation for SOE's would be retained by theborrower for review by IDA missions and external auditors. All expenditures above the thresholdsindicated above would be eligible for direct payment.
Special account:Under Traditional Procedures. In order to facilitate project implementation, BCEAO will open a SpecialAccount. The authorized allocation CFAF 600,000,000 or equivalent) will cover four months of eligibleexpenditures. Upon effectiveness, an amount representing 50% of the authorized allocation will bedeposited into the Special Account. Replenishment applications will be submitted monthly. Theapplications will include details identifying the amounts withdrawn.
Under PMR Disbursements. Upon receipt of each application for withdrawal of an amount of the Credit,the Association shall, on behalf of the Borrower, deposit into the Special Account an amount equal to thelesser of: a) the amount requested; and b) the amount which IDA has determined, based on the ProjectManagement Report accompanying the application, is required in order to finance eligible expendituresduring the following six-month period, provided the total account balance does not exceed the equivalent ofUS$4,000,000.
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Annex 7: Project Processing ScheduleAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Project Schedule Planned ActualTime taken to prepare the project (months) 19 30First Bank mission (identification) 03/15/98 03/15/98Appraisal mission departure 08/15/99 08/28/2000Negotiations 10/15/99 09/05/2000Planned Date of Effectiveness 01/15/2001
Prepared by:
BCEAO
Preparation assistance:
PHRD Grant
Bank staff who worked on the project included:
Name SpecialityAnn Rennie Task Leader, AFTPFCharlie Garrigues Senior Payment System Specialist, FSDJer6me Chevallier ConsultantOlivier Lambert Financial SpecialistAhmadou Moustapha Ndiaye Financial Management Specialist, AFMSNClaudine Morin Senior Counsel, LEGAFJosette Percival Language Team Assistant, AFTPS/FAmy Champion Operations Assistant, AFTPSBourama Diaite Consultant, Procurement
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Annex 8: Documents in the Project File*AFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
A. Project Implementation Plan
* Timetable for Project Implementation (5/19/00)* Procurement Plan (June, 2000)* Cost Tables by component (June 2000)* BCEAO Project Presentation to WAEMU Banks April, 2000
B. Bank Staff Assessments
* Aide-memoire, Back-to-Office Report, May, 1998* Back to Office Report, July, 1998* Aide- Memoire, November 1998* Aide-Memoire, January, 1999* Presentation to BCEAO, April, 1999* Aide-Memoire, March, 1999* Aide-Memoire and Back to Office Report, May, 1999* Aide-memoire and Back to Office Report, June, 2000* Minutes of PCD Review Meeting, April, 2000- Financial management capacity assessment* Minutes of Decision Meedting, August, 2000* Aide-Memoire and Back to Office Report, September, 2000
C. Other
* Call for Bids for Feasibility Study, July, 1998= Consultants' Terms of Reference and bid documents, July 1998• Ernst & Young Feasibility Study, Phase 1,June 1999= Ernst & Young Feasibility Study, Phase 2, October 1999
Ernst & Young Feasibility Study, Phase 3, January 2000
*Including electronic files
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Annex 9: Statement of Loans and CreditsAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
Difference between expectedand actual
Original Amount in US$ Millions disbursementsProject ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd
NOT
APPLICABLE
Total:
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AFRICASTATEMENT OF IFC's
Held and Disbursed Portfolio
In Millions US Dollars
Committed DisbursedIFC IFC
FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi ParticNOT APPLICABLE
Total Portfolio:
Approvals Pending Commitment
FY Approval Company Loan Equity Quasi Partic
Total Pending Commitment:
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Annex 10: Country at a GlanceAFRICA: BCEAO REGIONAL PAYMENT SYSTEMS PROJECT
UEMOA at a glance2/1 81D
Low &POVERTY and SOCIAL midde
UEMO Income Development dtamontr1998Population, mid-year (IWlilIOns) 66.6 4,889.8 Life expectancyGNP per capita (Atfas metomdI US$) 390 1,260GNP (Atlas methoc, USS billions) 26.0 6,123.6
Average annual growth, 199248
Population (%) 2.8 1.5Labor torte () 2.7 1.9 GNP Gross
per primnaryMost recernt esimate (latest year available, 1992-98) capia enrollment
Poverty (% o(popularlon below national poverty fine)Urban population (%" of total populaio0n) 33 41Life expectancy at birth (years) 48 65Infant mortality (per 1,000 live bIrths) 99 59Child malnutdtion (% o(childen undter5) , Access to safe waterAccess to safe taler (% otpopuladon) SS 75Iliteracy(% orpopulaton age 15+) 66 27Gross primary enrdoment (% ofschool-age populaton) 63 107 UEMOA
Male 74 110 Low & mikdle Income groupFemale 51 101
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
1978 1988 1997 1998Economic ratios'
GOP (USS billions) 16.3 25.0 25.3 27.0
Goss domestic investment/GDP 24.1 15.5 17.8 18 .Exports of goods and serfces/GDP 29.3 25.3 33.7 32.4 TradeGrossdomesticsasngs/GDP 15.0 9.7 15.D 15.8Goss national savingsdGOP 15.5 7.4 12.0 14.1
Current account balance/GOP -14.3 -9.2 -6.9 -6.4 DInterest payments/GDP 1.6 2.6 2.3 2 9 Domestic biveotmentTotal debt1GOP 44.2 98.6 115.3 107.4 Savings +Total debt servce/eVporls 13.9 27.7 21.3 22.5Present wlue of debt/GOP 82,4Present alue of debt/e,orts 235.2
Ihdebtedness1978-88 1988-98 1997 1998
(average annual gfwth)GDP 0.9 2.6 5.4 4.8 . UEMOAGNP per capita -2.3 0.0 2.9 2.6 Low & rniddle income gMupExports of goods and seces 2.6 3.3 6.8 1.9
STRUCTURE of the ECONOMY1978 1988 1997 1998 Growth or investment andrdur I%)
(% of GOP)Agriculture 32.1 32.4 30.7 30.7Industry 16.4 19.9 20.9 21.5 10
Manufacturing 8.4 14.3 14.1 14.5seraces 51.4 47.7 48.5 47.9 o
d1 94 95 94 07 99Private consumption 70.5 75.3 73.1 72.9 orc IGeneral government consumption 14.6 15.0 11.9 11.3 .Qr I - -DPImports of goods and services 38.3 31.0 36.6 35.3 GD_ GCP
1978-88 1988-98 1997 1998 arowtn of exports and imports (7)(average annual growth) isAgrculture 1.4 2.8 1.5 3.1 1Industry 3.8 3.3 9.9 8.1 1 o
Manufacturing 3.3 2.6 8.7 7.9 sServces -0.2 2.1 6.4 4.8
Private consumption 1.2 4,77 4 5.9 . iJ4J a5 97 goGeneral government consumption 0.7 0.4 53 -0.5 sGross domestic investment -5.1 4.2 10.4 13.0 10Imports of goods and serfces -0.5 1.7 6.5 5.4 -Ewts . ImponxGross national product 0.6 2.9 5.7 5.3
Note: 1998 data are preliminary estigrates. This table was produced from the Development Erconomics ceetral database.UEMOA (West Afican Economic and MonetaryUnion) indudes Benin, Burkina Faso, Cdte dchoire, Guinea-Bissau. Mali. Niger, Senegal,and Togo. The diamonds show four key indicators in the country (n bold) compared with its income-group average. If data are missing,the diamond will be incomplete.
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UEA10
PRICES and GOVERNMENT FINANCE1978 1988 1997 1998 Inflation (%)
Domestic pnces 4
(% change)Consumer prices 3.4 5.6 3.4 2.6 30-
Implicit GOP deflator 7.7 0.9 3.1 3.1 20
Government finance 10(% or GDP, includes current grants) 0,
Current revenue .. 18.8 17.0 16.8 93 94 s5 96 97 98Current budget balance .. -2.7 3.0 3.9 -GDP deflator -Q--CPIOverall surplusideficit .. -7.9 -3.1 -3.1 _
TRADE1978 1988 1997 1998
(US$ millions) Export and import levels (US$ mill.)Total exports (fob) , 6,601 8,782 8,479 o0,00
Manufactures .. 1,182 1,541 1,517 750Total imports (cit) 5,870 7,509 7,646
Food .. 1,277 1,429 1,469 500Fuel and energy .. 603 1,140 1,012 2,500 i*
Capital goods .. 1,252 1,695 1,823
Export price index (1995=100) .. 64 100 101 ! 2 93 94 5 5 97 98Import price index (1995=100) .. 57 110 105 M CExports E ImportsTerms of trade (1995=100) .. 113 91 96
BALANCE of PAYMENTS1978 1988 1997 1998 CurrentaccountbalancetoGDP(%)
(UsS$ milions)llExports of goods and services 4,762 6,297 8,650 9,078 0Imports of goods and services 6,392 7,913 9,073 9,628 -Resource balance -1,631 -1,615 -423 -550
.4Net income -455 -1,268 -1,044 -980Net current transfers -7 58 1
Current account balance -2,330 -2,301 -1,734 -1,728 -
Financing items (net) 2,249 2,416 1,965 1,629 |- +Changes in net reserves 81 -115 -231 100 12
Memo:Reserves including gold (US$ millions) 749 919 2,229 2,495Conversion rate (DEC, local/USS)
EXTERNAL DEBT and RESOURCE FLOWS1978 1988 1997 1998
(US$ millions) Composition of 1998 debt (USS mill.)Total debt outstanding and disbursed 7,198 24,665 29,151 29,033
IBRD 211 1,818 1,058 950 G: 2,370 A: 950IDA 301 2,146 5,777 6,440
Total debt service 709 1,922 1,924 2,012 F 4443 B: 6,440IBRD 21 316 254 215IDA 2 25 76 85
Composition of net resource flows : _ k _ {
Official grants 452 1,090 1,388 1,569 c 1,515Official creditors 507 745 228 369 I
Private creditors 1,014 -19 -441 -300Foreign direct investment 215 80 587 527 E- 9,487 :3828Portfolio equity 0 0 18 6
World Bank programCommitments 137 425 537 638 A - IBRD E - BilateralDisbursements 126 432 415 500 B - IDA D- Other mutilateral F - PrivatePrincipal repayments 5 155 199 187 C - IMF G - Short-termNet flows 121 277 216 313Interest payments 18 186 130 113Net transfers 103 92 85 199
Note: This table was produced from the Development Economics central database. 2/18/00
UEMOA (West African Economic and Monetary Union) includes Benin, Burkina Faso, C6te dIvoire, Guinea-Bissau, Mali, Niger,Senegal, and Togo. Inflation figures are median values. Balance of payments items excluding exports and imports are simplesums and may not reconcile.
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