Document of The World Bank

Public Disclosure Authorized Report No: ICR0000665

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-36570)

ON

A CREDIT

Public Disclosure Authorized IN THE AMOUNT OF SDR 15.0 MILLION (US$22.06 MILLION EQUIVALENT)

TO

MONGOLIA

FOR THE

SUSTAINABLE LIVELIHOODS PROJECT

Public Disclosure Authorized June 19, 2008

Rural Development, Natural Resources and Environment Sector Unit Sustainable Development Department East Asia and Pacific Region

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

CURRENCY EQUIVALENTS

Currency Unit = Mongolian Tögrög (MNT)

Exchange Rate Effective February 4, 2008: MNT 1,000 = US$0.8525 US$1.00 = MNT1,172

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance Strategy CGAP Consultative Group to Assist the Poorest CPR Centre for Policy Research CSD Centre for Social Development DCA Development Credit Agreement HLSPO Household Livelihoods Support Program Office HLSC Household Livelihood Support Council (?) IBLI Index-Based Livestock Insurance JSDF Japan Social Development Fund KPI Key Performance Indicators LDF Local Development Fund LEWS Livestock Early Warning System LIF Local Initiatives Fund MDF Micro-Finance Development Fund M&E Monitoring and Evaluation MFI Micro-Finance Institution NDVI Normalized Differentiated Vegetation Index NGO Non-governmental Organization NPAP National Poverty Alleviation Program PAD Project Appraisal Document PDO Project Development Objective PFI Participating Financial Institution PIM Project Implementation Manual PRM Pastoral Risk Management RLF Revolving Loan Fund SLA Subsidiary Loan Agreement SLP Sustainable Livelihoods Project SRMC Soum Risk Management Committee

GLOSSARY aimag an administrative Province dzud the occurrence of an exceptionally harsh winter, frequently following a long and pasture- killing summer drought, that causes high livestock mortality rates.

sum/soum an administrative District bag a lowest-level rural administrative unit ger traditional wooden-framed and felt-covered dwelling

Vice President James E. Adams, EAPVP Country Director David R. Dollar, EACCF Sector Manager Rahul Raturi, EASRE Project Team Leader Andrew Goodland, EASRE ICR Team Leader Gayane Minasyan, EASRE

Mongolia

Sustainable Livelihoods Project

Implementation Completion and Results Report

Contents Page No.

Data Sheet i-vii

1. Project Context, Development Objectives and Design...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 7 3. Assessment of Outcomes ...... 13 4. Assessment of Risk to Development Outcome...... 21 5. Assessment of Bank and Borrower Performance ...... 22 6. Lessons Learned...... 24 7. Comments on Issues Raised by Borrower, Implementing Agencies and Partners... 25

Annex 1. Project costs and financing...... 27 Annex 2. Outputs by components ...... 29 Annex 3. Economic and Financial Analysis ...... 40 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 44 Annex 5. Summary of the Borrower’s ICR and/or Comments on the Draft ICR ...... 47 Annex 6. List of Supporting Documents...... 48

Maps 31854, 31855, 31856

A. Basic Information Country Mongolia Project Name Sustainable Livelihoods Project ID P067770 Credit Number IDA-36570 ICR Date May 30, 2008 ICR Type Core Lending Instrument APL Borrower Mongolia Original Total XDR 15.0 million Disbursed Amount XDR 15.0 million Commitment Environmental Category B Implementing Agencies Household Livelihoods Support Program Office Co-financiers & Other External Partners Japan Social Development Fund

B. Key Dates Revised and/or Process Date Process Original Date Actual Dates November 21, September 30, September 30, Concept Review Effectiveness 2000 2002 2002 Appraisal February 25, 2002 Restructuring - - Mid-term Approval June 11, 2002 March 28, 2005 May 27, 2005 Review December 31, December 31, Closing 2006 2007

C. Ratings Summary C.1 Performance Rating by ICR Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government Satisfactory Quality of Supervision Satisfactory Implementing Agency Satisfactory Overall Bank Performance Satisfactory Overall Borrower Performance Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating Potential Problem Project at No Quality at Entry (QEA) None any time?

i Problem Project at any time? No Quality of Supervision (QSA) None DO rating before Closing Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as percentage of total Bank financing) Animal production 22 24 Central government administration 6 11 Micro-finance and small & medium enterprise finance 27 24 Other social services 45 48

Theme Code (Primary/Secondary) Administrative and civil service reform Secondary Secondary Improving labor markets Primary Primary Infrastructure services for private sector development Primary Primary Participation and civic engagement Primary Primary Rural markets Primary Primary

E. Bank Staff Positions At ICR At Approval Vice President James Adams Jemal-ud-din Kassum Country Director David R. Dollar Ian C.Porter Sector Manager Rahul Raturi Mark D. Wilson Project Team Leader Andrew D. Goodland Robin Mearns ICR Team Leader Gayane Minasyan - Gayane Minasyan/ Andrew ICR Primary Author - Goodland

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

The Sustainable Livelihoods Program, Adaptable Program Loan (APL), was designed to support a strategic shift in the Government of Mongolia’s anti-poverty strategy (please see details in Section 1.1 Context at Appraisal) and to be implemented in three Phases over twelve years beginning in 2002. The Sustainable Livelihoods Project was designed to support Phase I of the Program. The development objective of the project is “an effective approach to promoting improved, secure, and sustainable livelihood strategies developed, demonstrated, and validated in selected areas, and institutional capacity created so that these strategies can be replicated and scaled-up in Phase II of the Program”.

ii

Revised Project Development Objective (as approved by original approving authority)

The development objective of the project was not altered during its implementation.

PDO Indicators

Actual Value Original Target Values Formally Achieved at Indicator Baseline Value (from approval Revised Completion or documents) Target Values Target Years Indicator 1 Improved pastoral risk management strategies adopted in core aimags. The number of The proportion of herding herding households households making adequate which made Value 42.9% of baseline preparations for winter to be preparation for winter respondents increased by 33 percent in increased by 53.7% project areas. compared with the

pre-project period Date achieved October 1, 2002 December 31, 2006 November 2006 Although there was no specific definition of “adequate preparations” in the indicator, it can reasonably be taken to mean i) adequate hay and fodder preparation and ii) Comments construction of livestock shelters. The number above is from an independent evaluation

of the PRM which provides information on the change of attitude, based on the herders’ recollection. The number of animal losses 9.2%-13.3% of Livestock mortality in Value related to dzud to be reduced livestock lost due to pilot aimags reduced by 33 percent in project dzud (1996-2002) by 44 percent. areas. Date achieved October 1, 2002 December 31, 2006 December, 2005 Note that it is difficult to attribute this reduction to the project. No significant dzud took Comments place during the project period, so it would be expected that animal losses would decrease. at least 50 percent of the 100 percent of grazing land area to be grazing land in under improved Value project areas was Not available management in project areas under improved by comparison with the start management plans at of the project. project completion.

Date achieved October 1, 2002 December 31, 2006 December 2007 While not a measure of the area improved, 59 percent of herder group respondents felt that pastures had improved considerably - a perception shared by 30 percent of non-group Comments herders. If the perceptions are assumed to reflect the area managed by herders, and group and non-group herders are roughly equal in number, then the result would indicate an improvement in only slightly less than 50 percent of the area. A discernible positive No NDVI or other impact to be achieved on remote sensing data range-vegetation conditions was available to Value Not available as measured by a discern changes in

normalized differentiated pastureland vegetation index (NDVI) or conditions, so this a similar indicator using indicator could not be

iii remote sensing data. monitored. Date achieved October 1, 2002 December 31, 2006 December 31, 2007 A proxy indicator for range-vegetation is herders’ perceptions of rangeland conditions. In November 2006, 59 percent of herder group respondents felt that pastures had Comments improved considerably during the project period, a perception shared by 30 percent of non-group herders. Micro-finance services available and used by poor households to build assets and to Indicator 2 smooth consumption on a financially- and institutionally-sustainable basis in selected aimags. There was no base- line measurement as the target value was based on the total 10 percent of target number of Value beneficiaries in the eight About 15% of target beneficiaries from the selected aimags to use population were sub- Micro-Finance financial services. borrowers from MDF Development Fund (MDF) on-lending and not the incremental number. Date achieved October 1, 2002 December 31, 2006 December 31, 2007 Comments A measurable improvement Ninety percent of to be achieved in the borrowers reported an livelihood security of Value 0 increase in income. targeted beneficiaries (the New activity The average income indicators were to be increase was 29 defined in the design of the percent. base-line survey). Date achieved October 1, 2002 December 31, 2006 The specific indicators were not designed at the baseline. However, 2006 survey on the Comments “Changes in the livelihoods of sub-borrowers of MDF” measured the monetary income changes among sub-borrowers and factors affecting them. Less than 10 percent of the total loan portfolio of Not applicable. RLF Value 0 selected Revolving Loan was cancelled from New activity Funds (RLFs) are to be in project. “past due” status.

Date achieved October 1, 2002 December 31, 2006 A condition for disbursement to support RLFs was a review of their performance. This review found that performance of the RLFs had not improved and that additional Comments resources provided to the RLFs would continue to support unsustainable microcredit services. $500,000 originally allocated for the RLFs was cancelled and reallocated to the MDF in support of sustainable microfinance services. Selected RLFs achieve 50 Not applicable. RLF Value 0 percent operational self- was cancelled from New activity sufficiency. project. Date achieved October 1, 2002 December 31, 2006 Comments See above 50 percent of selected RLFs Not applicable. RLF Value 0 receiving additional funds was cancelled from New activity are to be privatized. project.

iv Date achieved October 1, 2002 December 31, 2006 Comments See above An index-based livestock insurance An index-based livestock product was designed Value Not applicable insurance (IBLI) scheme is under SLP and

New activity to be developed and put into implemented under operation. the Index-based Livestock Insurance Project. May 26, 2005 Date achieved October 1, 2002 December 31, 2006 (Credit Effectiveness) While product was developed under SLP I, it has since become a stand-alone Bank- Comments financed IBLI project, supported by an IDA Credit (Cr.4069-MOG). Indicator 3 Infrastructure improved and well-maintained with community participation. 75 percent of target Actual numeric value community members to be for this indicator is satisfied with the procedure not available. High Value 0 for the identification, satisfaction rates are New activity selection and provided by different implementation of sub- studies for different projects. procedures. Date achieved October 1, 2002 December 31, 2006 December 31, 2007 No specific survey was carried out to assess the LIF process from a range of community perspective. Monconsult 2006: 37 percent of respondents felt that selection processes were transparent, open and fair; 72 percent of community members ranked HLSCs’ Comments “performance” as average to excellent; 50 percent of community members noted a slight or major change in community participation, initiatives and sense of self-responsibility. Helsinki Consulting Group reports 83.4% of those who received sufficient information regarding the projects selected. Community scorecards in HLSPO indicate 93% satisfaction rate 85 percent of target Value 0 beneficiaries of sub-projects 86% New activity are to be satisfied with the infrastructure implemented. Date achieved October 1, 2002 December 31, 2006 December 31, 2007 The HLSPO Citizen Scorecards ( 308 respondents in ten soums,) reported a satisfaction rate of 93 percent; the Helsinki study reports (2,138 respondents) a satisfaction rate of Comments 92.4 percent; MonConsult Study (2,521 respondents) a satisfaction rate of 80%. The above is the average across the three studies.. Options are to be identified for integrating a “needs- Options were Value Not applicable driven” allocation of public identified in 2005, but New activity expenditure with regular not implemented local government budgeting. Date achieved October 1, 2002 December 31, 2006 The target per se was achieved. Implementation of identified options was made Comments inoperable by reforms to the government’s fiscal policy framework. See section 1.6

v

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Herder self-help groups established and members trained in organizational and Indicator 1 business skills 313 herder groups were established as 430 herder self-help non-governmental 0 groups to be organizations and 100 Value This was a new established and existing cooperatives activity members trained in and informal groups eight aimags. have been strengthened. Date achieved October 1, 2002 December 31, 2006 December 31, 2007 Though the target value was not achieved, this activity was successful. Formal Comments registration was required, to facilitate access to resources, i.e. group loans. Combined community/local government contribution amounted to 10% of total Indicator 2 cost of sub-projects under LIF 0 Value No LIF before the 10% 10% project Date achieved October 1, 2002 December 31, 2006 December 31, 2007 Achieved in all soums. In several cases this was drawn from local contractors, and only after the more in-depth community mobilization and awareness creation stage did significant contributions come from the communities themselves. Figures for the final Comments share of local government and community contributions are not available. While it has certainly occurred, it is not possible to make a fair assessment of local government counterpart contribution through intergovernmental transfers Outreach of institutionally- and financially-sustainable micro-finance services to Indicator 3 targeted poor and near-poor vulnerable households achieved in selected aimags. Wholesale loan The MDF was repayment rate from Internationally established, and the PFIs to the MDF: acceptable Subsidiary Loan 100 percent Value (Consultative Group to Agreements (SLAs) had Assist the Poorest - been signed with several Sub-loan repayment CGAP) repayment Participating Financial rate by sub-borrowers rates to be achieved. Institutions (PFIs). to the PFIs: 98.9 percent Date achieved October 1, 2002 December 31, 2006 December 31, 2007 Comments

vi

G. Ratings of Project Performance in Implementation Status and Results Reports (ISRs)

Actual Date ISR No. DO IP Disbursements Archived (US$ million) 1 06/19/2002 Satisfactory Satisfactory 0.00 2 11/25/2002 Satisfactory Satisfactory 0.50 3 06/18/2003 Satisfactory Satisfactory 0.90 4 12/02/2003 Satisfactory Satisfactory 3.74 5 06/24/2004 Satisfactory Satisfactory 6.92 6 06/25/2004 Satisfactory Satisfactory 6.92 7 12/20/2004 Satisfactory Satisfactory 9.79 8 06/24/2005 Satisfactory Satisfactory 11.22 9 12/14/2005 Satisfactory Satisfactory 14.44 10 12/29/2006 Satisfactory Satisfactory 19.69

H. Restructuring

The project was not restructured during implementation.

I. Disbursement Profile

vii

MONGOLIA SUSTAINABLE LIVELIHOODS PROJECT IMPLEMENTATION COMPLETION AND RESULTS REPORT

1. Project Context, Development Objectives and Design 1.1. Context at Appraisal 1.1.1. During the initial years of economic transition in the 1990s, and despite four years of modest economic growth and low inflation in the second half of the decade, poverty and inequality were serious problems in both rural and urban areas of Mongolia. Research1 showed that the overall head-count measure of poverty remained stable, at 36 percent, between 1995 and 1998 but that the depth and severity of poverty worsened. Social services delivery in rural areas also deteriorated, reflected through the high costs and low quality of health and education, as a result of dysfunctional institutional structures and inadequate capacity.

1.1.2. The primary goal of the Country Assistance Strategy (CAS) 2 in effect during the period of project identification and preparation was to support the government in its efforts to transform the economy from a “command and control” model into a market-led approach in order to raise living standards and reduce poverty. The project directly supported the fourth CAS goal: to promote equitable development through direct poverty alleviation assistance to ensure continued support for vulnerable groups.

1.1.3. Between 1994 and 2000, poverty reduction was pursued mainly under the National Poverty Alleviation Program (NPAP), an inter-sectoral program supported by multilateral and bilateral agencies and NGOs to which the Bank was the major contributor. The NPAP provided valuable support to local governments for the rehabilitation of social and economic infrastructure but its effectiveness was limited as there was little opportunity for local populations to express their preferences and views to their elected representatives.

1.1.4. After 2000, the Government made poverty reduction one of the highest priorities in its Action Plan that addressed the marked urban-rural divide with a stronger focus on rural development. The serious losses of livestock caused by the three consecutive winter-spring dzud3 in 1999/2000, 2000/2001 and 2001/2002 emphasized to the government and the donor community the importance of the livestock sector in the rural economy and the need to enhance pastoral risk management. Furthermore, financial services that would enable households to make productive investments, diversify income opportunities and weather economic shocks, were not accessible to the vast majority of the rural population due to weaknesses in the financial system. According to 1999

1 Living Standards Measurement Surveys of 1995 and 1998 2 Country Assistance Strategy: Report No. 17604-MOG of April 1, 1998 3 Dzud can be defined as the occurrence of an exceptionally harsh winter, frequently following a long and pasture- killing summer drought, that causes high livestock mortality rates.

1 estimates, about 95% of the cash circulating in the economy was concentrated in Ulaanbaatar, while the vast proportion of trade in rural areas remained on a barter basis.

1.2. Original Project Development Objectives and Key Indicators

1.2.1. The project was the first phase of the three-phased Adaptable Program Loan supporting the Sustainable Livelihoods Program. The Program development objective is: “target groups and individuals adopt improved strategies that build and maintain, human, social, financial, physical and natural capital while reducing vulnerability to shocks”.

1.2.2. The project development objective (PDO) defined in the PAD is “an effective approach to promoting improved, secure, and sustainable livelihood strategies developed, demonstrated, and validated in selected areas, and institutional capacity created so that these strategies can be replicated and scaled-up in Phase II of the Program”.

1.2.3. It should be noted that the Development Credit Agreement (DCA) contained a different formulation of the project’s objective, stating it to be “… to assist the Borrower to reduce the incidence of poverty among poor and extremely poor households and to prevent non-poor households from falling below the poverty line, by (i) developing and implementing, on a pilot basis, secure and sustainable livelihood strategies, and (ii) building the institutional capacity for large-scale implementation of such strategies.” In the DCA, therefore, reducing poverty is stated as an explicit part of the objective whereas it is implicit in the PAD. This may have reflected confusion between the Program’s higher level goal and the project’s specific objective. The Project’s design did not include measurements of poverty incidence or poverty-related statistics among its performance indicators. For the purposes of this ICR the project will be evaluated against the PDO as set forth in the PAD.

1.2.4. The Key Performance Indicators at the outcome level at appraisal were:

A. Improved pastoral risk management strategies to be adapted in core aimags. • Proportion of herding households making adequate winter preparation increased by 33% in project areas by comparison with the start of project and/or non-project areas representing similar ecological zones; • Dzud-related animal losses reduced by 33% by comparison with the start of the project and/or non-project areas representing similar ecological zones; • At least 50% of the grazing land area under improved management in project areas by comparison with the start of the project; • A discernible positive impact to be achieved on range-vegetation condition in project area by comparison with non-project areas representing similar ecological zones and precipitation conditions, and as measured by a normalized differentiated vegetation index (NDVI, data obtained from remote sensing) or a similar indicator.

B. Micro-finance services to be made accessible to and used by poor households to build assets and smooth consumption on a financially and institutionally sustainable basis in remote areas of target sums:

2 • 10 percent of target beneficiaries in the eight selected aimags use financial services; • Quantitatively and qualitatively measurable improvement in livelihood security of targeted beneficiaries (precise indicators to be selected in design of base-line survey); • Less than 10 percent of total loan portfolio of selected Revolving Loan Funds (RLFs) past due; • 50 percent of selected RLFs receiving additional funding privatized; • index-based livestock insurance (IBLI) scheme developed and operational.

C. Basic district- and community-level infrastructure to be improved and maintained in core aimags • 75% of target community members satisfied with the procedures for the identification, selection, and implementation of sub-projects; • 85% of target beneficiaries of sub-projects satisfied with infrastructure activities implemented; and • Options identified for integrating needs-driven public expenditure allocation with regular local government budgeting.

A detailed discussion and assessment of KPIs are provided in Section F.

1.2.5. In addition to KPIs, a set of performance triggers were defined in the PAD. These triggers would be used as a basis to determine whether the Program could proceed from Phase I (SLP) to Phase II (SLPII). The triggers, listed below, are complementary to the KPIs and should be considered alongside the KPIs:

Pastoral Risk Management • Institutional framework for PRM established and functioning • Soum level management plans under implementation • Herder organizations established and functioning • Group-based approach to well management implemented • PRM strategies successfully implement in different agro-zones • Fodder and hay making activities successfully demonstrated

Local Initiatives Fund • Management capacity at soum level created for implementing LIF • LIF investments reflect community priorities • The management and flow of funds are competently handled • Legal and policy instruments in place for fiscal decentralization • Output indicators met or exceeded • A participatory M&E system is operating effectively

Microfinance Outreach • MDF established and operational • Microfinance products tailored to the poor piloted in core aimags • Revolving Loan Funds (RLF) – three triggers • Index-based livestock insurance scheme developed and operational

1.3. Revised PDO and Key Indicators

3 1.3.1. The development objective and key indicators were not revised. However, one trigger was waived and three others became non-applicable (see section 1.6 below):

1.4. Main Beneficiaries (original and revised)

1.4.1. The Project target group, as defined in the PAD, was the “able-bodied poor” and “low-income-households near the poverty line who are at risk of falling into poverty as consequence of external shocks”. These households would be both direct and indirect beneficiaries; however, this does not mean that the project would only benefit these groups. All rural communities would potentially benefit from improved access to social infrastructure (schools, healthcare centers etc.) responding directly to the expressed needs of the communities themselves; herder households would benefit directly from investments in improved pastureland management; and rural entrepreneurs would benefit from improved access to financial services.

1.4.2. In addition, the project would support the establishment and strengthening of institutions and institutional procedures at the local and national level providing services to the primary target group. This would include local community institutions, including local councils and authorities, and, at the national level, commercial banks and non-bank financial institutions and national government. 1.5. Original Components (US$ as in the PAD/ US$ actual) The project had four components. The costs at appraisal, as shown here, included price but not physical contingency provisions.

1.5.1. Component 1: Pastoral Risk Management (US$5.70 M/ $4.18 M) was designed to reduce the vulnerability of herders and enhance their resilience to drought, dzud and other shocks through four sub-components:

(a) Risk Forecasting and Contingency Planning, with the emphasis on improving the coverage and dissemination of weather forecasting data and developing sum-level contingency plans;

(b) Grazing and Pasture Management, under which support to different types of community- based pasture management initiatives was envisaged, e.g. pasture mapping, seasonal pasture rotation, rehabilitation of emergency grazing reserves, group based well rehabilitation, etc;

(c) Herder Self-Help Initiatives would provide organizational strengthening and matching loans to assist groups of herders to establish revolving funds to finance livestock productivity-enhancing investments;

(d) Hay and Fodder Enterprise Development to test business models for hay making and concentrate feed production and support aimag- and sum-level fodder reserves. It would begin in 16 pilot sums and be expanded to all 143 sums in the eight pilot aimags.

The outcome would be an integrated strategy developed, piloted and adopted in eight selected aimags for managing covariant risk in pastoral livestock production, with a primary emphasis on risk preparedness.

4

1.5.2. Component 2: Micro-Finance Outreach (US$6.01 M/ $5.95 M) was designed to provide financially- and institutionally-sustainable micro-finance services to targeted poor and vulnerable non-poor households and individuals in remote rural areas of eight core aimags through three sub-components:

(a) Creation of a Micro-Finance Development Fund, a wholesale lending facility that was expected to provide funds under sub-loan agreements to accredited Micro-Finance Institutions (MFIs) for on-lending to the target population for the expansion and diversification of livelihood sources and rural incomes;

(b) the Strengthening of Revolving Loan Funds was designed to improve the operational efficiency and financial health of the micro-credit Revolving Loan Funds (RLFs), owned and operated by local governments, which were created at the sum level under the NPAP. As conditions for disbursement under this sub-component, the Borrower would: (a) establish a MIS adequate for monitoring micro-finance portfolio quality; and (b) prepare a detailed Action Plan for the used of these funds, acceptable to IDA, with the objective of strengthening the selected RLFs.

(c) the Development of an Index-Based Livestock Insurance Scheme, under which a risk index was to be developed, based on objective third-party verifiable indicators, on the basis of which eligible participating private insurance companies would offer insurance to individual herders, herding households and others owning livestock to cover the covariant risk arising from dzud, drought or other weather-related events.

1.5.3. Component 3: The Local Initiatives Fund (US$9.16 M/ $12.03 M) was designed to provide community-driven mechanisms to identify, define priorities, select, co-finance and implement investments in basic infrastructure and social services in rural and peri-urban areas (covering all 143 sums in the eight core aimags ). The component had three sub-components:

(a) Investment Funds. The Local Initiatives Fund (LIF) was piloted in the eight core aimags and one duureg (the peri-urban district of Ulaanbaatar) to provide decentralized sub-project approval at the level of the sum and bag. The Local Development Fund (LDF), piloted during the NPAP, would finance investments in the remaining 13 aimags and eight duuregs. Under the LDF, decision-making would remain at the aimag level;

(b) Training and Capacity Building would be focused mainly on the sum and bag levels in the eight core aimags to develop skills in administration (including community-based procurement and disbursement of funds);

(c) A Fiscal Decentralization Initiative was designed to explore the operational requirements of a “needs-driven” approach to public expenditure allocation at the local level through a three-year action and research program.

1.5.4. Component 4: Project Management and Policy Support (US$1.25 million/ $2.71 M) was designed to create an efficient, decentralized project management system and a policy framework for promoting sustainable livelihoods. It would make use of, and build on, the existing program management structure, and the strengthening of existing institutional capacity would be the main priority.

Further details on project components and outputs under each of them are given in Annex 2.

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1.6. Revised Components

1.6.1. Changes were made to three sub-components during implementation:

(a) Micro-Finance Outreach – Index-based Livestock Insurance: the development and introduction of an IBLI scheme was replaced by a self-standing IBLI project, a Credit 4069-MOG in support of which was approved by the Board on May 26, 2005. Decision to go ahead with a self-standing project was confirmed during the mid-term review.

(b) Micro-Finance Outreach – Revolving Loan Funds: A condition for disbursement to support RLFs, as set forth in the DCA, was a detailed review of their performance. This review found that performance of the RLFs had not improved and that additional support to the RLFs would continue to support unsustainable microcredit services and could further exacerbate the problems and jeopardize the sustainable microfinance services that were being provided by both commercial banks and non-bank financial institutions. $500,000 originally allocated for the RLFs was reallocated to the MDF in support of sustainable microfinance services. Consequently, RLFs were cancelled from the project and relevant triggers became non applicable.

(c) Local Initiatives Fund: The fiscal decentralization sub-component was made inoperable by reforms to the government’s fiscal policy framework, which the Bank supported, that were implemented to increase the centralization and effective control of the fiscal and budgetary system shortly after the Credit’s approval. As a result, the requirement (covenant under DCA Schedule 4 Section D para 16) and the associated trigger were waived by the Bank with effect from December 7, 2005.

The modifications introduced were made at the regional management level and did not require Board approval.

1.7. Other Significant Changes

1.7.1. In December 2006, the project was extended for twelve months in response to the government’s request. This allowed the following: (i) an increase of the benefits to herders and rural communities by continuing successful components under the projects; (ii) enabling the completion of further capacity building activities to lay a solid foundation for the second phase of the program; and (iii) avoiding a major gap between the first and second phases of the project, therefore maintaining continuity of the institutional implementation structures developed under the project.

Original and Revised Project Costs (US$ million)

Component/Sub-component PAD Budget Actual Cost Pastoral Risk Management: 5.698 4.179 of which · Risk Forecasting and Contingency Planning 0.223 0.175 · Grazing and Pasture Management 1.645 1.136 · Herder Self-help Initiatives 2.000 1.709

6 · Hay and Fodder Enterprise Development 1.295 0.451 · Component Management and Implementation 0.535 0.708 Micro-finance Outreach: 6.013 5.950 of which · Micro-Finance Development Fund 4.205 5.752 · Strengthening of Revolving Loan Funds 0.608 - · Index-Based Livestock Development Scheme 1.124 - · Component Management and Implementation 0.075 0.198 Local Initiatives Fund: 9.163 12.028 of which · Investment Funds 7.466 11.910 · Training and Capacity Building 0.249 0.086 · Fiscal Decentralization Initiative 0.106 - · Component Management and Implementation 1.342 0.032 Project Management and Policy Support 1.248 2.713 Total Project Cost 22.122 24.871* * There was a significant increase in the US$ value of the Credit caused by the appreciation of the SDR during the life of the project. The original amount of the Credit, SDR15.0 million, was equivalent to US$18.73 at the time of appraisal. At the Closing Date, the Credit was equivalent to US$23.64 million of which US$1.58 million was un-disbursed and the amount invested in the project was US$22.06 million. 2. Key Factors Affecting Implementation and Outcomes 2.1. Project Preparation, Design and Quality at Entry 2.1.1. The project quality at entry was satisfactory. The project responded to the Government’s priorities in several key areas and maintained its overall strategic relevance throughout the implementation period. Objectives were set clearly in the context of the CAS and Government strategies. It built on a rigorous background analysis and data from a participatory living standards assessment, as well as other sectoral studies. In addition, it reflected lessons learned under NPAP to which the Bank contributed through Poverty Alleviation for Vulnerable Groups project, and utilized the institutional structures already in place for preparation and implementation of the project. Specific components and activities planned contributed to the overall objective and were mutually reinforcing. They were designed to address unmet priorities and complementary to other donor-funded projects and government initiatives.

2.1.2. The design provided an appropriate bridge from approaches that were already established under NPAP to the new approaches being piloted under the project. In this regard, it was appropriate to maintain support for some of the approaches developed under NPAP, while piloting new ones. For example, the LDF continued in aimags not receiving support for the LIF. The RLFs were also a legacy of the previous government program. At preparation, it was agreed that if these could be run to commercial standards of performance then the project would provide additional support. However, this did not occur and, as mentioned above, it was cancelled and resources were reallocated to MDF.

2.1.3. It should be noted that as a first operation in a multi-phase program, the design of the project was quite complex, with a large number of activities across several sectors and geographical regions. While issues that the project was trying to address were well

7 known, some of the approaches and activities were very innovative, particularly in relation to pastoral risk management and linkage to financial sector services. For example, Mongolia was the first country to develop and pilot index-based livestock insurance, introduced under this project.

2.1.4. Overall risk assessment for the project was adequate. In fact, anticipated risks included possible resistance at the level of ministries or a change in policy on the part of government concerning decentralized public investment management. As implementation would show, this concern was well-founded, and the whole initiative embodied in Sub-component 3 (c) was abandoned shortly after the project began and the trigger was waived.

2.1.5. One weakness in the design was a failure to fully anticipate the technical assistance that would be required to develop the capacity of local communities to learn and adopt the new approaches piloted under the project. Lack of such funds under the project delayed the start-up of some of the activities. The JSDF Grant received shortly afterwards provided additional funds for technical assistance.

2.1.6. In relation to this, the objectives for achieving institutional change and reforms at the national level were likely too ambitious, in particular in the creation of a well- functioning pastoral management institutional framework and the progress towards greater fiscal decentralization. In addition, KPIs were overly ambitious (and sometimes ambiguous and/or unrealistic) for the expected outcomes .

2.1.7. There was no QAG “Quality at Entry” assessment carried out.

2.2. Implementation

2.2.1. Implementation progress of the project was satisfactory. No major factors outside government or implementation agency’s control affected project implementation. There was no restructuring necessary during project implementation, neither was the project at risk at any stage during project implementation. There were some reallocations between the categories as a result of cancellation of the RLF sub-component, separating IBLIP into a self-standing project and US dollar depreciation.

2.2.2. The responsible agency for project implementation was the Household Livelihood Support Program Office, which reported directly to the National Committee, chaired by the Prime Minister and including Ministers and senior officials from relevant government and non-government agencies. The original intention was that the project would be one of several initiatives supporting the country’s poverty reduction program. However, no other initiative was ever financed, and this created a false expectation that the project was accountable for delivering the government’s poverty reduction goals, which were more far-reaching and demanding than the project’s objectives. This disconnect between the National Committee’s broad mandate and the project’s narrower objective created confusion at the national level and led to unjustified criticism of the project. On occasions, this caused delays in project implementation, for example, delays in the

8 approval of the operating budget for the HLSPO. Effectiveness and to some extent quality of the project implementation was also affected by the high staff turnover, particularly in M&E, procurement and financial management.

2.2.3. As noted above, the design of the project failed to anticipate the considerable resources that would be required to strengthen community capacity for implementing the project. The implementation of the PRM component was particularly slow due to weak capacity of herders and responsible government officials at the local level. Here the Bank team’s efforts to solve some issues at the entry should be commended. Quest for additional resources to strengthen the capacities at local level resulted in an application for the JSDF Grant (TF51703) to support local community mobilization and capacity building and to establish a participatory monitoring and evaluation system. JSDF Grant played an important role for this project. The implementation of the grant activities was largely successful and contributed greatly to the overall successful project implementation.

2.2.4. One major factor within the Government control was a reversal from fiscal decentralization policy. While the Public Sector Financial Management Law of 2002 has streamlined budgeting procedures, limited fiscal resources of the government in fact reversed even the existing degree of decentralization. At mid-term, it was decided to modify the sub-component and refocus it to enhance state-citizen engagement in fiscal decision making, transparency and accountability.

There was no QAG “Quality of Supervision” assessment carried out.

2.3. Monitoring and Evaluation (M&E) Design, Implementation and Utilization

2.3.1. Monitoring the implementation and impact of the project was challenging given the scale of the activities and the multifaceted components. The KPIs and triggers were poorly articulated at project design and it is difficult to isolate the changes in variables that could be confidently said to reflect solely the effects of the project. In some cases they are not specific; for example, expressions such as “functioning institutional framework”, “adequate winter preparations”, “improved management” of grazing land area, and “improvement in livelihood security” were not fully defined and left open to interpretation.

2.3.2. A monitoring specialist in the HLSPO was responsible for consolidating information provided by the three operational components of the project, and the majority of the inputs for the system were designed to come from the M&E systems of the three components. The main structure of the monitoring system was designed to carry out the day-to-day monitoring of activities at the aimag- and sum-level HLSCs.

2.3.3. M&E Implementation. The base-line survey4 to define the values of key indicators for the evaluation of the outputs and impacts of the project was carried out in July and August, 2004, two years after the start of implementation, with an attempt to

4 Report on the Baseline Survey of Sustainable Livelihoods Program, 2005

9 assess the conditions existing in the previous year. While providing lots of data, the baseline survey produced very little data relevant to monitoring of KPIs. There were efforts made to modify the indicators, as recommended by supervision missions, to reflect better the attribution to the project (for example, for Component 1 in September 2005), however, the changes were only partially addressed in the final evaluations.

2.3.4. In 2004 JSDF grant was mobilized to support the development of a Participatory Monitoring and Evaluation system for the SLP components and to facilitate its effective implementation at the local and community levels in order to improve transparency, inclusion and participation in the project’s implementation. It was initially piloted in 16 soums, and eventually was scaled up to all 143 soums of 8 pilot aimags. It contributed substantially to improving the M&E system for SLP, developing participatory data- collection methodology/toolkits, redefining indicators, modifying PM&E forms for PRM and LIF, streamlining the procedures of reporting, information flows and institutional responsibilities to avoid duplications, strengthening capacity and empowerment of local communities to achieve transparency and accountability of project and grant implementation.

2.3.5. Prior to the project’s schedule closing date in late 2006, separate impact assessments were conducted for the three main project components. The local consultant teams were required to measure and evaluate progress on the KPIs, though as noted above, these were often not clearly articulated, and the information from these studies is incomplete. Nevertheless, all the studies were used to a certain extent for project evaluation purposes.

2.3.6. M&E Utilization. The delay in conducting the base-line study and the “retrospective” approach taken to reconstructing data for the base year (2003) in 2004, as well as the fact that it does not cover most of the KPIs are obvious flaws in the methodological soundness of the M&E system. Consequently, the use of baseline survey for evaluation of project outcomes was very marginal.

2.3.7. The M&E system by the end of the project had: (i) compiled a detailed data-base of the project’s outcomes for the period 2003 – 2007; (ii) synthesized the key findings of the pilot project on participatory M&E in eight pilot aimags; and (iii) prepared for the integrated and outcome-based M&E system for the SLP II to support the second phase of the Program.

2.4. Safeguard and Fiduciary Compliance 2.4.1. Environment. The project triggered three environmental safeguard policies: Environmental Assessment; Natural Habitats and Pest Management. Problems with environmental screening and assessment mechanisms were identified earlier on during project implementation and then rectified shortly. Regional reviews of EA implementation were organized by HLSPO during the implementation process and environmental capacity building was provided to soum secretaries, agricultural, land and environmental officers. One issue identified during Bank supervision was that well rehabilitation was potentially and inadvertently threatening the khulan or Wild Asiatic

10 Ass Equus hemionus classified as ‘Vulnerable’ by IUCN. As a result, a study was undertaken in conjunction with the Netherlands-Mongolia Trust Fund for Environmental Reform. The study5 indeed confirmed that development of additional livestock watering facilities can reduce khulan access to habitat and increase livestock-khulan conflict. Corresponding mitigation measures were proposed which were further monitored during implementation of the PRM component.

2.4.2. Indigenous People. An Ethnic Minorities Participation Framework was prepared to help ensure adequate participation of ethnic minorities in the project. On average, the Kazakh ethnic minorities constitute about 85-86% of project beneficiaries in Bayan- Ulgii, the Buriat ethnic minority comprises 85%-88% of beneficiaries in Dornod, and the Bayad and Dorved ethnic minorities constitute between 83% and 90% of the beneficiaries in Uvs. These results are in line with the percentage of minority ethnic group representation in the population of the three aimags where significant ethnic minorities are present. As the Kazakh-speaking ethnic minority is not fully literate in the Khalkh Mongolian language, the SLP PIMs and the M&E forms have been translated into Kazakh and distributed to the minority population of Bayan-Olgii.

2.4.3. Involuntary Resettlement. A Resettlement Policy Framework was developed to protect those who might be affected because of possible community demand for land for small scale infrastructure development. However, its application never materialized. Only 12% of sub-projects were new facilities or an expansion. None involved land acquisition.

2.4.4. Procurement. There were no major procurement issues during the initial periods of project implementation. However, some issues became apparent towards the end of it, problems occurring mostly at the aimag level and below. Some examples are:

• Liberal interpretation of selection criteria. For example, the lowest bids were sometimes rejected, because the supplier had no prior experience of supplying goods to that specific aimag, even though this was not a criterion for evaluation. This was clearly an indication of inadequate procurement capacity and the Bank rightly recommended that HLSPO conduct a close monitoring of procurement in the field, followed up by an additional training provided to aimag and soum secretaries.

• In some soums, procurement of goods was occasionally organized through a community participation method. There was confusion over the eligibility of this procurement method, due to different interpretations of the English and Mongolian versions of the Procurement Manual, which was later clarified.

• Failure to check technical specifications laid out in quotations against technical specifications of actually delivered goods resulted sometimes in acceptance of sub- optimal quality goods. Where goods of poor quality have been provided, the Bank team urged soum governors to enforce the warranty clause of the contracts to ensure that poor quality goods were replaced.

5 report, movie and ppt available at http://khulan.org

11 • Lack of packaging of contracts providing the same goods to a number of different soums at the aimag level. The Bank supervision team noted several times that the efficiency of the aimag tender committee could have been improved if it had grouped similar items into single contracts for invitations to quote.

Intensive upfront procurement capacity building program is envisaged for SLPII, building on the experience of SLP.

2.4.5. Financial Management. High fiduciary staff turnover was a continuous challenge for this project, at times leading to mistakes in disbursement related work, such as incorrectly prepared applications and/or duplicate payments, at times leading to low overall efficiency of financial management. The areas identified for improvement include: (i) improved financial planning and budgeting and reflection of the variance analysis in the quarterly FMRs; (ii) provision of evidence/documentation in support of incurred expenditures; (iii) proper cost categorization, as improper classification of expenditures among cost categories was resulting in inconsistencies with legal agreements; and (iv) systemic preparation of monthly bank reconciliations. At the soum level the main problems were: (i) failure to properly enter and record local contributions in MIS; (ii) inaccurate filing of financial documents; and (iii) initial permanent deposit (in some cases, up to 30,000 MNT) and bank charges for transfers were not originally considered as potential costs, and thus no allocation for that was made under operational costs budget. Based on these experiences, provisions and adequate safeguards for proper financial management of SLPII were developed. Adequate FM capacity at different levels is a condition of SLP II effectiveness (FM manual and staff at SLPO) and disbursement (recruitment and training of aimag accountants).

2.5. Post-completion Operation and Next Phase

2.5.1. As already mentioned, the project led to two further Bank investment operations: (i) the IBLIP, which was spun out of the Microfinance Development component; and (ii) the second Phase of the Sustainable Livelihoods Program. The sequencing of these operations was as follows:

Sustainable Index-based Livestock Sustainable Livelihoods Project Insurance Project Livelihoods Project II Concept November 2000 July 2004 April 2006 Appraisal February 2002 March 2005 March 2007 Credit Approval June 2002 May 2005 June 2007 Credit September 2002 September 2005 April 2008 Effectiveness Credit Closing December 2007 June 2010 June 2012

2.5.2. The IBLI project is designed as a pilot operation to operate in three aimags; its development objective is to ascertain the viability of IBLI to reduce the impact of livestock mortality on herders. In effect, the IBLI project represented an evolutionary step that built on the early achievements of the IBLI sub-component of the project, and articulated: (i) the commitment of the government to strengthen measures to reduce the

12 socio-economic impact of livestock losses resulting from dzud in order to achieve its objectives on poverty reduction; and (ii) a growing level of interest on the part of the domestic insurance sector. The initial studies on IBLI conducted under the SLP indicated that to pilot the new insurance products with the private insurance market would be technically complex and demanding, and therefore it was justified to create a new investment operation to support this.

2.5.3. The design of the Second Sustainable Livelihoods Project built on the experience derived from SLP I . It intends to scale-up institutional mechanisms that reduce the vulnerability of rural communities throughout Mongolia at national, aimag and soum levels. SLP II maintains the same component structure with certain modifications and re- naming of parts.

(a) The Pastoral Risk Management component builds on the functioning mechanisms developed in eight pilot aimags under the SLP I and replicates at the national level the effective identified strategies to prepare for and respond to pastoral risk. Design changes introduced include the development of a livestock early-warning system6, soum-level pasture land management plans and decision-making, an expansion of the coverage of demonstration areas, and strengthened coordination among institutions involved in PRM policy and response.

(b) The Community Initiatives component combines the previous two funds (LIF and LDF) into one – the Community Initiatives Fund. Two institutional models are introduced for appraisal and approval of sub-projects using existing structures and participation, to which are added the flexible allocation of funds between soums (based on levels of population and poverty) and increased local contributions.

(c) The Micro-Finance Development component maintains the structure of a Micro-Finance Development Fund channeling funds to participating financial institutions (PFIs). The SLP II is designed to: (i) increase the volume of funding and to diversify the products offered by the MDF to the PFIs; (ii) provide grant funds for innovative activities and loan funds for non- collateral lending to the rural poor; (iii) provide technical assistance in the design of regulatory and supervisory systems for non-bank financial institutions and (iv)design, launching and cost-sharing with the financial sector, national campaigns of consumer financial education.

3. Assessment of Outcomes 3.1. Relevance of Objectives, Design and Implementation 3.1.1. Project design and implementation have maintained their relevance. The project is consistent with the then current 2004 CAS7 and 2005 CAS update, a main pillar of which is reducing household vulnerability, including that of herders, by improving access of rural and urban poor to social and basic services and the sustainable management of natural resources. The new draft Country Partnership Strategy FY09-12, currently under discussion, is built on three platforms, one of which is “Improving rural livelihoods and environment”. The objective of the project therefore remains fully consistent with

6 Initially developed and tested under the Gobi Forage Project supported by the Mercy Corps/GL-CRSP. 7 Report No. 28419-MOG, of April 5, 2004

13 current priorities, also manifested by continuation of support for the Sustainable Livelihoods Program through the implementation of SLP II.

3.2. Achievement of the Project Development Objectives

3.2.1. The primary objective to develop, demonstrate and validate an effective approach to promoting improved secure and sustainable livelihood strategies, and to create institutional capacity so that these strategies can be replicated and scaled up in Phase II, was achieved. SLP II will build on the approaches tested under SLP I and will cover all aimags and soums of Mongolia.

3.2.2. Each “thematic” component has specific objective which contributes to the achievement of the overall project objective. Detailed assessment of outcomes under each component is presented below, along with assessment of triggers. Pastoral Risk Management

3.2.3. Outcome: an integrated strategy developed, piloted, and adopted in eight selected aimags for managing covariant risk in pastoral livestock production, with a primary emphasis on risk preparedness.

3.2.4. The Pastoral Risk Management component achieved its objective and is rated Satisfactory. As mentioned in Section 2.1 (Project Design), indicators for measuring the expected outcomes are ambiguous and not all of them address the causes. However, the project substantially achieved the component outputs and, to a considerable and satisfactory degree, achieved the triggers for transition from Phase I to Phase II (see table below). The outcomes were largely achieved in terms of the adoption of an integrated strategy.

Trigger Status and Achievements Institutional framework for National Coordinating Council on Pastoral Risk Management PRM established and has been established in December 2005. Soum and aimag level functioning pastoral risk management councils have been established and functioning in all project areas since 2004.

Pastoral land resources and social maps have been produced in Soum level management plans 142 soums as a tool for reaching and helping to enforce under implementation agreement on the seasonal rotation of pasture land use

313 formal herder groups have been established of which 271 Herder organizations groups have taken out loans for income generating and risk- established and functioning mitigating activities

477 wells have been rehabilitated in the eight core aimags and Group-based approach to well are being managed by herder groups management implemented

PRM strategies successfully PRM strategies were developed and tested in eight pilot

14 implement in different agro- aimags, in 20 demonstration areas, in four agro-ecological zones zones – forest steppe, grass steppe, shrub steppe, and desert. Strategies included mapping, assisting in the understanding of resource distribution, use and capacity in specific locations; plans developed to address local priorities for wells, hay- making opportunities, or reserves, as necessary; and herders having options to develop income-generating livelihoods suited to inputs and markets available.

Fodder and hay making 34 inter-aimag and inter-soum hay and fodder reserves have activities successfully been rehabilitated for emergency use, with agreed use and demonstrated management plans in place

3.2.5. The impact evaluation shows major behavioral changes and an increase in activities contributing to contingency risk planning, such as the percentage of households making hay and fodder preparation, improvement of hayfields, joint building of new and repairing of existing winter shelters. Patterns of pasture land use also improved compared to 2004: (i) the numbers of herders’ groups exercising joint protection and use of pasture increased by 18 percent; (ii) the number of groups using grazing resources on seasonal division and rotational grazing increased by 57 percent; and (iii) the number of groups that have created grazing reserves increased by 19 percent. Substantial capacity was built through training of about 84 percent of the bag governors, 87 percent of the leaders of herders groups, and 32 percent of all herding families (in pilot aimags) in different activities related to basic mapping, pasture land management and risk planning.

Micro-Finance Outreach

3.2.6. Outcome: the outreach of financially and institutionally sustainable micro-finance services to targeted poor and vulnerable non-poor households and individuals achieved in remote rural areas of eight core aimags.

3.2.7. Micro-finance outreach component is rated Satisfactory. The main sub- component for the Micro-Finance Outreach component was the establishment and operation of the Micro-finance Development Fund: a wholesale, revolving credit facility. Increased outreach to poor and vulnerable households in remote areas by the MDF was to be achieved primarily through placing conditions on the use of the funds provided through the MDF, notably that 75 percent of loan source were required to be made at the soum level or below and 40 percent of the borrowers had to be below the poverty line. To promote sustainability, the funds were on-lent to PFIs at market based rates, and participating financial institutions set the on-lending terms and conditions, including collateral requirements. Indirectly, outreach was also achieved by creating more competitive conditions in rural financial markets by injecting additional liquidity into the market.

3.2.8. The achievement of performance triggers is detailed in the table below. The MDF out-performed its original targets. By project end, approximately $7.13 million had been allocated to the PFIs as wholesale loans, from which a total of $17.0 million has been on- lent to rural residents (including revolving re-disbursements). A total of 29,021 sub-loans

15 had been disbursed to 141,602 beneficiaries (direct and indirect). The quality of the PFIs’ portfolios has been high with a repayment rate of 98.9% on the sub-loans. Targeting of poorer households was also successful, with 47% of sub-loans lent to households below the poverty line. Over 67% of the on-lending has been provided at the soum-level or below.

Triggers Status and Achievements MDF established and MDF was established and operational since 2003, with a total operational capitalization of US$4.3 millions. By the end of 2007 had disbursed US$7.13 million through PFIs in 21 aimags and one district of Ulaan Baatar.

Microfinance products 53% of sub-borrowers were classified as poor and/or low income tailored to the poor piloted in and almost 67% of the funds went to soum level or below. core aimags “Herder” loan product was developed and introduced.

Not applicable, as RLFs were dropped from the project Revolving Loan Funds (RLF) – three triggers Insurance scheme was developed. A free-standing IBLI project Index-based livestock has been prepared, supported by an IDA Credit and implemented insurance scheme developed since 2005. and operational

3.2.9. The wider institutional development in rural financial services provision during the project’s lifetime was significant. Increased competition between commercial banks and non-bank financial institutions has increased, and the majority of soums are now served by at least two financial institutions. This has had a favorable impact of real on- lending interest rates and collateral requirements, both of which have decreased significantly. Although it is difficult to directly attribute these advances to MDF, it is reasonable to conclude that the MDF has contributed to this and therefore achieved the component’s objective.

3.2.10. As noted above, the other two sub-components (RLFs and IBLI) were not implemented under the project. More details on these sub-components are also provided in Annex 2.

Local Initiatives Fund

3.2.11. Outcome: efficient, socially inclusive, and transparent community-driven mechanisms were identified and established to facilitate community prioritization, selection, co-financing, and execution of investments in basic infrastructure and social services provision in rural areas, combining local resource mobilization with government grants based on clear and transparent criteria for inter-governmental transfers.

3.2.12. The LIF component is rated Satisfactory. Under this component, the mechanisms designed during the preparation of the project have worked well to identify, select and implement local social infrastructure projects. Awareness and capacity has been created

16 at the aimag and soum level (including governors, a range of local staff and NGOs) for implementing the LIF community works in all 143 soums in the eight pilot aimags, achieving considerable efficiency and outreach, and satisfactory results in terms of improved services. Evaluations showed that such capacity and its results in community- identified investments lead to high levels of satisfaction among officials and beneficiaries.

3.2.13. The average satisfaction rate with infrastructure activities implemented was 86 percent. High levels of community satisfaction with outcomes suggest that the processes are working well to identify and select local priority projects. Community mobilizers added value, as measured through the use of community scorecards, and there are positive trends in increases in soum/bagh meeting participation. A functional participatory M&E system has been developed and operational since 2006. The role of communities in assessing project progress is seen as positive by local officials, though some participants believe that they lack engagement in the bidding and selection process of contractors. Overall, the process actively engages citizens, which is a new opportunity for participation in government program on a scale which has not been done before in the country.

3.2.14. On the whole, the process of sub-project identification and prioritization has been carried out satisfactorily and with considerable efficiency. Implementation of sub- projects under LIF/LDF has been much faster than that of similar sub-projects through the line ministries. The average number of months from LIF/LDF sub-project approval at soum level to project completion has been just below nine months (government investments, often bigger, can take 2-3 years for approval and 1-2 years of implementation)8. Considering the large number of sub-projects and activities in all soums, the processes used have been very open and generally transparent. Overall, the LIF/LDF processes used are much more transparent than regular government investment activities.

Triggers Status and Achievements Management capacity at soum Soum level councils have been established in 143 soums level created for implementing implementing community-driven investment projects for LIF small-scale infrastructure

LIF investments reflect 50% of LIF/LDF investments went to the education sector, community priorities 30% to the health sector and the remaining 20% for development and improvement of other social services, local infrastructure and environment protection.

The management and flow of The management and flow of funds was competently handled funds are competently handled and delays were largely due to political factors beyond the control of the project. There were no cases of misappropriation of project funds reflected in audit reports.

8 “Costs and Benefits of LIF Sub-Projects Financed Through the Sustainable Livelihoods Project”, November 2006

17

Legal and policy instruments in Waived place for fiscal decentralization

Output indicators met or Achieved (Annex 2 provides details) exceeded A participatory M&E system is A functional participatory M&E system has been developed operating effectively and tested that actively engages citizens since 2006.

3.2.15. A total of 1,729 sub-projects in health (26%), education (57%) and infrastructure development (17%) were implemented in all of the pilot soums. Over 10% of the LIF was funded by contributions from local communities and individuals. Combined LIF/LDF activities benefited approximately 91% of all secondary schools and 89% of kindergartens and school dormitories, improving learning and the living conditions of rural children. As a result of the activities under this component, 1,561 people were provided with temporary jobs and 135 new public service centers were established in remote rural areas.

3.3. Efficiency

3.3.1. Pastoral Risk Management. The benefits anticipated from the component were the reductions to be achieved in livestock losses caused by dzud. The analysis in the PAD concentrated on the potential impact of PRM on livestock losses, and assumed that the adoption on a nation-wide basis of the PRM strategy would reduce losses in dzud years to the long-term average rate of mortality. There was no major dzud over the lifetime of the project, and while there was an almost 46% reduction in livestock mortality in pilot aimags, it is difficult to attribute it to project interventions.

Conventional ex-post economic analysis was carried out for the LIF component, because: • Almost 50% of project costs went to this component; • Efficiency of the activities under LIF/LDF was one of the declared objectives

3.3.2. The analysis covered a sample of 100 sub-projects, such as school and dormitory rehabilitation, school and dormitory refurnishing, kindergarten rehabilitation, rehabilitation of school heating systems, public bath houses, hospital rehabilitation, drinking water supply and maternal rest home refurnishing.

Type of Sub-Project Principal Benefits Identified Hospital and school renovation Measureable increases in the number of students and and/or extension patients Wells for potable water Improved health, potential income for the soum/bagh from leasing management to an operator Ambulances and motorbikes for Better coverage for treatment and prevention campaigns soum doctors such as vaccinations The solar batteries for schools and Running costs are low, patient care and student study hospitals possibilities improved

18 3.3.3. The findings of this analysis also indicate that most sub-projects have a good cost benefit ratio and economic rate of return (ERR), ranging from 6% (dormitory heating system) to 30% (ambulance for a soum hospital) with an overall average of 20%. Only one investment has a negative ERR - public bath houses - mostly because of the combination of low user rates and high running costs.

3.3.4. Other sub-projects that would most likely have a high rate of return but are difficult to measure include materials and equipment in kindergartens and dormitories. The investment is relatively small but the benefits are qualitatively estimated to be high.

3.3.5. The findings of the analysis suggest that delivery of services through sub-projects supported by the component is cost effective. As compared to similar government civil works, the duration from project submission to project completion is relatively shorter for projects supported under the SLP I.

3.4. Justification of the Overall Outcome Rating

Rating: Satisfactory

3.4.1. The project achieved its objective to develop, demonstrate and validate an effective approach to promoting improved secure and sustainable livelihood strategies, and to create institutional capacity, all of which is being scaled up and replicated countrywide under SLP II.

3.4.2. While the design of some elements of the project, particularly of KPIs, was overly complicated, it nevertheless supported the achievement of the intended outcomes and objectives. Moreover, the objectives, design and implementation retained their overall relevance and remained fully consistent with Mongolia’s development priorities and with the Bank’s country and sectoral assistance strategies.

3.4.3. The level of efficiency was high. Project costs were justified, as benefits out weight the costs substantially.

3.5. Over-arching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects and Social Development

3.5.1. There are no direct measures of the poverty impact of the project, however, all components explicitly or implicitly targeted poor households, and there is evidence that these households benefited from the project.

3.5.2. The Ex ante assessments from the LIF/LDF sub-project proposal forms indicate that roughly 30 percent of the targeted beneficiaries were considered poor or very poor. There are indications that several types of projects would have large relative benefits across the population and to rural bag residents and households with lesser access to services in general. Some projects are useful to the general population such as primary

19 schools. Herder families, who are often poor and among the most vulnerable, would benefit to a greater extent from dormitories for their children (30,784 schoolchildren from poor and vulnerable households), as well as maternity rest homes where most of the family members live in distant grazing areas. Other projects such as kindergartens, tree planting, pipe heating systems and drinking water sub-projects tended to provide greater benefits to soum center beneficiaries, who may not be as poor but who also have a considerable share of people living in poverty9. Overall, learning environment improvement, i.e. school rehabilitation, furniture procurement, etc., significantly benefited girls (316,333 out of 575,552 direct beneficiaries), while temporary job creation due to infrastructure rehabilitation clearly benefited the very poor (1,331 out of 1,561).

3.5.3. Almost half of the microfinance beneficiaries were poor and from low-income households -- 92.3% of the loans were for income generating activities. The Impact evaluation study (ME Consulting, 2006) revealed improvements of the borrowers’ livelihoods and positive changes in income structure, e.g. from increased profits from private businesses and informal sector activities.

(b) Institutional Change and Strengthening

3.5.4. The project’s concept evolves around institutional change and strengthening, and institutional development is an inherent outcome of this project. Under each component, institutions and capacities were established to support sustainable livelihood strategies, for example substantial progress was made in developing soum level capacity in preparing and using pastoral management plans. Progress was made in (i) the development of the institutional framework for pastoral risk management at the national and local level (through development of organizations, development and testing of procedures and building capacities at the local level) for the establishment of MDF and development of herder-tailored loans, and (ii) the establishment of efficient and transparent community-driven mechanisms for basic infrastructure and social services provision in rural areas.

3.5.5. There are two areas of limited progress with building capacity for institutional change and strengthening:

• Despite the fact that the National Coordinating Council on Pastureland Management was established in 2005, it has not been active since then. While no doubt the establishment of the NCCPM raised the profile of pasture risk management issues in the country, the lack of a working level body/secretariat limited the functionality of this institution.

• The institutionalization of procedures established under the LIF component was hindered by the government’s decision to recentralize its fiscal management, leaving little opportunity for the project’s mechanisms to be incorporated at the local level.

(c) Unintended Outcomes and Impacts

N/A

9 30 percent poverty headcount in urban areas: World Bank Poverty Assessment 2006.

20

3.6. Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

N/A 4. Assessment of Risk to Development Outcome

Rating: Moderate

4.1.1. There are two main risks to sustainability and development outcome: (i) lack of adequate funding of organizations responsible for pastoral risk management; and (ii) implementation of a regionalization policy might cause restructuring of budgetary entities and planning processes in aimags and soums.

4.1.2. Funding of organizations responsible for pastoral risk management. There are two-tier issues here: funding provided at national level for policy development and funding provided at local level for actual implementation of PRM strategies.

(a) Based on NCCPM’s recommendation, a specialized pastureland management division was set up in the Ministry of Food and Agriculture (MoFA). The division is currently being funded from UNDP - the “Sustainable Grassland Management Project”, which is closing at the end of December 2008. The Transition of funding arrangements from UNDP to the Government was expected to take place in October 2007; however, this has not happened as yet. It is envisaged that the division will officially become part of MOFA’s institutional structure after the June elections, when the new government is formed and a new MOFA structure is approved.

(b) Institutional framework of PRM at aimag land soum levels has been established and functioning well. However, funding of actual PRM activities remains a concern. They largely remain as self-standing activities and hence lack financing beyond the project investments. SLP II introduces PRM Fund, which is expected to test and examine options for sustainable financing of PRM, integrated with local and planning and budgeting.

4.1.3. Implementation of regionalization policy might cause restructuring of budgetary entities and planning processes in aimags and soums. The Medium Term Strategy on Regional Development 2001-2010 (adopted by the Parliament in 2003) identifies key regional centers -Western, Hangai, Central and Eastern regions and Ulaanbaatar city, and aimags to be incorporated into each. If implemented, this could potentially cause a restructuring of the administrative structures of the aimags and soums. It might also have resource allocation implications, including infrastructure and social service delivery. Current planning processes established under the project rely on existing administrative structures and thus institutional sustainability is highly vulnerable to such changes. This risk is being recognized under SLP II, and while the institutional arrangements are still largely the same, the project will attempt to establish principles for and experience with local management of budgetary resources that surpass higher level changes.

In addition to these two main risks, there are two secondary risks:

21 4.1.4. Political pressure might force the PFIs to reduce the lending rates for special target groups, e.g. herders. This would cause declining profits and lead to lower engagement in rural lending. It would also eventually prevent the achievement of the objective of substantial improvement in microfinance outreach to the poor in rural areas. Lending terms, and particularly interest rates, are subject to continuous political speculations. There is a wide belief among politicians that interest rates for loans to herders should be subsidized, without consideration of transaction and opportunity costs. SLP II will need to engage in substantial policy dialogue with all stakeholders and improve public awareness on these issues. Provisions have been made for this, e.g. developing a publications relations campaign under SLPII.

4.1.5. A large-scale dzud could potentially overwhelm capacity and affect a still nascent institutional framework. While no major dzud occurred during the life of SLP I, climatic variability in Mongolia is very high, thus the likelihood of dzud. Improvement of pastoral infrastructure and planning capacity in pilot aimags should in principle mitigate this risk to some extent, and IBLIP could in principle provide supplementary support to herders, albeit in three pilot aimags only.

5. Assessment of Bank and Borrower Performance 5.1. Bank (a) Ensuring Quality at Entry Rating: Satisfactory

5.1.1. The Bank’s performance in project identification, support for preparation, and appraisal is rated satisfactory, despite some minor shortcomings in the design:

• optimistic expectations concerning decentralization policy and setting ambitious targets for fiscal decentralization, while recognizing the high risks of this agenda; • failure to fully anticipate the technical assistance that would be required to develop the capacity of local communities; • complicated design of performance indicators that were often difficult to use to measure the progress towards or achievement of project objectives.

5.1.2. Nevertheless, the project was consistent with the Government of Mongolia’s priorities to address poverty and vulnerability, inadequate capacity and community participation for service delivery, and under-development of rural financial systems. Its objectives are also closely linked to the Bank’s Country Assistance Strategy both then and now. Despite its complexity, covering numerous sectors and themes, the project design allowed for the delivery of project goals.

(b) Quality of Supervision Rating: Satisfactory

5.1.3. Bank supervision was adequate and satisfactory. The Bank team provided timely responses, actions and clearances and met internal reporting deadlines. Continuity of the Task Team was a particular supervision strength – even though the project effectively had three TTLs, all of them were long members of the task team, and therefore transitions

22 were smooth. The technical skill mix was also adequate and continuous, with the exception of M&E part, which was reviewed by a number of people. Supervision missions included regular site visits, updates and agreements on follow-up steps. The fact that the TTL throughout most of the project was based in Beijing also helped, as he was available to visit Mongolia on demand, especially during critical situations. Continuous presence of fiduciary staff in the project team merits particular mentioning, as detailed procurement and financial management reviews identified and addressed many issues which would have otherwise hampered implementation. Throughout the entire implementation period the project team maintained a close and collaborative spirit with the National Council and HLSPO, as well as the technical working groups.

5.1.4. The Bank team was also flexible and proactive in addressing major issues which could have otherwise had serious impact on the project performance, including:

• Cancelling support to non-performing and unsustainable RLFs

• Helping the counterpart to access resources for implementation of the M&E system and capacity building activities (through JSDF grant); and

• Exploring alternative avenues for addressing fiscal decentralization issues in light of government’s change of policy

(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory

5.1.5. Despite some minor weaknesses at the entry, the Bank actively worked with all counterpart agencies and stakeholders which ensured satisfactory outcomes of the project. In light of the above, the overall bank performance is rated satisfactory.

5.2. Borrower Performance

(a) Government Performance Rating: Satisfactory

5.2.1. The Government of Mongolia provided strong political support during project preparation and, despite frequent changes, it maintained its commitment to the project throughout the entire implementation period, albeit sometimes with different interpretations as to the project’s objective. The Government also maintained the structure of the National Committee which oversaw the implementation of the project, which to a certain extent ensured coordination and communication among the different agencies.

(b) Implementing Agency (or Agencies) Performance Rating: Satisfactory

5.2.2. The performance of the HLSPO, which was the implementing agency for the SLPI is rated satisfactory. Its special status, not being affiliated with any of the

23 ministries, provided a certain advantage, but also posed difficulties. It should be acknowledged that the HLSPO was functioning under difficult circumstances, being impacted by frequent changes in the Government. A High turnover rate, especially among the M&E, procurement and financial management and disbursement staff, eventually had some impact on performance in these areas. By contrast, PRM and LIF coordinators were with the project throughout the entire implementation and to a large extent ensured its’ success. Overall, HLSPO was able to carry out a project implementation of high quality. Staff at all levels (soum, aimag, HLSPO) was well qualified and extremely dedicated.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory

5.2.3. In view of the above, the Borrower’s overall performance is rated satisfactory.

6. Lessons Learned

6.1.1. A number of lessons were identified during implementation and have largely been incorporated into the design of SLP II:

6.1.2. Subsidized credit and credit delivered through non-financial institutions is not a sustainable approach to rural finance and innovation. The project design included three approaches to providing credit in rural areas: (i) subsidized credit under the PRM component; (ii) credit offered on commercial terms under the MDF; and (iii) RLFs operated by local authorities. Of these three approaches, only the MDF approach proved viable and sustainable. The performance of the subsidized credit and the RLFs was weak, the former having low repayment rates and weak administration and the latter dropped from the project due to weak performance. The MDF did demonstrate the feasibility of increasing micro-finance outreach through the commercial financial sector. Over the course of the project, many citizens were able to receive credit for the first time, and the performance of the borrowers in terms of repayment was very strong, despite market determined interest rates. SLP II will build on this to enable financial institutions to offer a broader range of products in rural areas and increase the capacity of both commercial banks and non-bank financial institutions to service rural clientele.

6.1.3. Fostering community participation is a continuous on-going task that requires explicit attention and resources. Although the project has been largely successful in bringing communities into the development process, especially under the LIF, the resources required for this were under-estimated during the project design. Even with the additional support from the JSDF grant, mobilization of communities will be an on-going challenge for the second phase and beyond, and will be critical for longer term sustainability. The approach for SLP II will be to work more closely in communities to institutionalize community mobilization and strengthen mechanisms for participation.

6.1.4. Institutional change takes time and requires work at multiple levels. In hindsight, the project was overly optimistic about the extent of institutional change that

24 could be achieved in the project’s lifetime. The project successfully achieved its objective to demonstrate successful approaches to create sustainable livelihoods, though less was achieved on institutionalizing these approaches into policy. The largest challenge was to forge linkages between the project and broader government policy. The main mechanisms for achieving this were the National Committee and component Technical Working Groups. Although in practice this structure provided guidance for project implementation, the links with policy formulation were not strong. Under SLP II the composition of the National Steering Committee and working groups has been re- thought to enhance links with key policy makers. Even so, it should be recognized that consensus building leading to policy development takes time.

6.1.5. Information on project implementation and outcomes, increasing public awareness of the project, and a strong communications strategy are essential for successful implementation. Project implementation was occasionally held back by a lack of understanding of the project’s objectives and approach. Even though a monitoring and evaluation system was established under the project, more attention could have been provided to presenting and disseminating information to a range of audiences, including the beneficiary communities, the general public and non-governmental organizations, Government and Parliamentarians and other interested parties.

7. Comments on Issues Raised by Borrower, Implementing Agencies and Partners

(a) Borrower/Implementing Agencies

7.1.1. Migration stabilization could be affected by a number of factors, including alternatives available in urban areas, natural conditions, terms of trade, etc. Over the last few years there was no major dzud, thus no major catastrophic losses that would force the rural-urban migration were faced. Besides, cashmere industry enjoyed relatively positive terms of trade, making herding viable again. While SLP certainly helped to improve the delivery of services in rural areas and established the basis for mitigating pastoral risk, it can not be claimed with full confidence that the project had an impact on population migration.

7.1.2. Comments were received from the Ministry of Social Welfare and Labor and the Financial Regulatory Commission on the Microfinance Outreach Component. All comments are forward looking, proposing aspects where more could be done to improve the component’s performance under SLP II. One challenge for the MDF is to move beyond its role as a wholesale lender and increasingly push the boundaries of financial system development. The focus in the comments on improving education and business skills is well placed and capacity within the MMO is being increased to enhance training programs. There are no funds under SLP II, however, to construct a training center: as far as possible training will be conducted on location, especially in rural areas.

7.1.3. Savings and Credit Cooperatives are recognized as potentially important financial institutions for rural populations, though were not eligible for support under the project. Under SLP II, once performance criteria are established for SCCs and a lending policy

25 for SCCs is agreed, these institutions will also be considered for MDF loans. As under SLP, the on-lending interest rates proposed by competing financial institutions will be an important criteria for the selection of PFIs.

(b) Co-financiers

(c) Other Partners and Stakeholders N/A

26 Annex 1: Project costs and financing

(a) Project Costs by Component

Components Appraisal Estimate Actual Costs Actual as percent (US$ million) (US$ million) of Appraisal Pastoral Risk Management 5.38 4.18 77.7 Micro-finance Outreach 5.99 5.95 99.3 Local Initiatives Fund 9.00 12.03 133.7 Project Management and 1.14 2.71 237.7 Policy Support Total Base-line Cost 21.51 24.87 - Contingency provisions: Physical 0.00 - - Price 0.61 - - Total Project Cost 22.12 24.87 112.4 Front-end Fee PPF 0.00 0.00 - Front-end Fee 0.00 0.00 - Total Financing Required 22.12 24.87 112.4

(b) Financing

Source of Funds Type of Co- Appraisal Estimate Actual Cost Actual as financing (US$ million) (US$ percent of million) Appraisal Borrower 3.39 1.58 IDA 18.73 22.06 Japan Social - 1.23 Development Fund Total 22.12 24.87 112.4

(c) Evolution of the Allocation of the Credit (in SDR)

Category DCA Amendments Disbursed

June March April December December May 2002 2004 2005 2005 2006 2008 1 Works, Parts A.2 and A.4 1,400,000 1,400,000 1,400,000 754,496 735,874 753,926 2 Goods, Parts A.1, A.2, A.4 & 570,000 570,000 570,000 341,315 341,315 339,084 D 90,000 90,000 90,000 90,000 84,532 85,352 3 (a) Audits 1,370,000 1,370,000 1,370,000 1,259,614 939,898 910,508 (b) Management support Part 1,200,000 1,200,000 1,200,000 1,200,000 950,286 887,528 D 770,000 770,000 770,000 616,348 601,136 590,624 (c) TA (including training) 2,410,000 2,820,000 2,820,000 2,997,834 2,951,444 2,907,787 HLSC sub-loans, Part A.3 410,000 - 410,000 - - - MFI sub-loans, Part B.1 810,000 810,000 2,860,000 23,986 - - RLF sub-loans, Part B.2 2,860,000 2,860,000 2,810,000 3,619,248 4,013,848 4,005,209 IBLI claims, Part B.3 2,810,000 2,810,000 300,000 3,660,096 3,971,433 4,010,892 LIF grants, Part C.1 300,000 300,000 400,000 300,000 335,367 306,339 LDF grants, Part C.1 - - - 137,063 74,867 74,867

27 Incremental operating costs Sub-loans: hay and fodder Designated Account - - - - - 121,067 Total 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 14,993,185

28 Annex 2: Outputs by components

($ as approved / $ actual)

Component 1. Pastoral Risk Management ($5,70 million /$4.18 million)

2.1. The table below summarizes the main investments and outputs under different subcomponents of the PRM component.

Table A - 2.1 - Component 1 Activities and Outputs Activity Number Loan/Grant Amount Comment Deep wells 483 Tg 1,281,587,808 Deep well rehabilitations occurred in all regions of Mongolia (233 in 5 Gobi aimags, 85 in the Far West, 42 in the Far East, and 123 in the Central). Herder Group 289 Tg. 1,047,200,000 Herder group and coop loans evenly and Coop distributed throughout the 8 core Loan aimags relative to requests received and accepted by the project. Hay and 21 Tg 229,500,000 Requests for hay and fodder equipment fodder loans were highest in the Central equipment Region and lowest in the Far East, loans reflecting higher capacity to prepare hay and other animal feed in the Central Cropping Zone. Hay and 34 Tg 48,587,864 Rehabilitated hay and fodder storage Fodder facilities were highest in the Gobi Storage Region and lowest in the Central Facilities region, reflecting the higher need for importation in the winter feed deficit Gobi Region which has higher probability of drought and dzud.

2.2. Capacity Building. A considerable amount of capacity building was done under the PRM component through manual distribution and seminars for existing aimag and soum land, environmental, agriculture and other officials. They, in turn, provided the main facilitation of meetings and interactions with herders. This put in place a basic understanding in pilot aimags and soums, of developing basic mapping, pasture land management and risk planning among officials. Trainings covered: (i) the use of pasture maps for pastoral management; (ii) how to develop a land management plan; (iii) using GPS; (iv) estimating carrying capacity; (v) alternative methods of rodent control; (vi) well selection and maintenance; (vii) migration and conflict resolution; (viii) regulating stocking densities; (ix) emergency migration routes. In addition to this, extensive training program was provided to herders and herder groups through direct training provision, exchange of best practices/experience, and study tours in project aimags. About 70 events were organized with the participation of 27,767 participants from 499 soums (includes double counting). Overall, the local training covered 83.8% of bag governors, 87.1% of leaders of herders’ groups and 31.7% of herding families.

1. Risk Forecasting and Contingency Planning

29 2.3. A Livestock Early Warning System (LEWS) has been piloted in the Tuv aimag since 2006. LEWS is based on a PHYGROW rangeland production model. The model builds on site information, surface hits, plant species, plant habit, grazing preferences of the livestock and production of vegetation. Bi-monthly forage growth maps were provided to all soums of Tuv aimag during 2007. Dissemination techniques and appropriate ways of feeding the information provided by the LEWS to aimag and soum level planners and to herders were tested. Training was provided on LEWS for stakeholders on interpreting and using LEWS, including at aimag and soum levels.

2.4. Long-range weather forecasting bulletins have been prepared and distributed to herders and the local population in all pilot aimags and soums. The bulletin was published 7 times with 45,600 copies. Bulletins are the second most important source of information for herders, after Mongolian public radio. The Herders’ assessment is that the bulletin provides useful input for househods in terms of preparedness to climatic shocks.

2.5. Several risk management brochures and handouts were developed and disseminated to the local stakeholders, including: • Guidelines for development of a soum pastoral risk management plan • Long-term weather forecasting and early risk warning • A methodological guidance for exploration and documentation and dissemination of best experiences and innovative skills • A manual for local trainers “Herders group-based pasture and risk management” (delivered to 657 individuals) • A manual for herders “Herders group-based pasture and risk management” (delivered to 23,674 khot ails)

Herders reference manuals and trainers manuals were also delivered to non-pilot aimags.

2. Grazing and Pasture Management

2.6. Pasture maps were developed for 138 soums in 8 aimags, containing: (i) base map, by winter-spring and summer-autumn seasons (scale 1:100.000); (ii) pasture stocking rate map by 4 seasons and by annual means (5 separate maps differently scaled, depending on the size of soum territory); (iii) well mapping with surrounding areas; (iv) seasonal pasture division map; (v) current stocking density map; and (vi) estimated carrying capacity mapping.

2.7. These maps have proved to be very popular with soum resource management officials and receive extensive use during discussions with herders concerning pastureland use, including supporting herder groups to make and self-enforce agreements on seasonal pasture rotation. Seasonal stocking density maps are also being used to assist in predicting possible scenarios for animal disease outbreaks and for making quarantine arrangements.

2.8. The pastureland demonstration program, based on the knowledge and experiences under SLP, attempted to pilot institutional frameworks. It established a system, building on the capacities of local stakeholders, and has been tested in the soums of Erdene and Erdenesant of Tuv aimag. The demonstration program was designed with the participation of the soum, bag officials from 2 pilot sums and the land and agricultural offices of the Tuv aimag. Consultations were held with key national stakeholders such as the Ministry of Food and Agriculture, the Agency for Land Relations, Geodesy and Cartography, relevant donor programs and tertiary education institutions.

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2.9. A total of 483 wells were rehabilitated in all pilot soums mostly under group management. This helped to better distribute grazing pressures, but it could also bring with it the risks of opening-up areas to regular grazing that should remain as reserves for critical times. It appears though that the selection of wells did broadly follow the agreed pasture management plans.

3. Herder Self-Help Groups

2.10. The project worked in 655 bags of 142 soums of 8 pilot aimags. In total, 313 NGOs were established and officially registered, with 6,313 members from 2,532 households. 42 cooperatives and 189 informal herder groups have been strengthened. While formation as NGOs was seen as a quicker option for formalization, and certainly a necessary first learning step in most cases, there are some limitations of this set-up in terms of potential group business development and marketing, and access to formal credit. Herder groups have been active in and benefiting from PRM activities, including:

• Involvement in soum-level PRM planning and awareness of its benefits • Increasing cooperative behavior on grazing land and camp-sites • Group-based approach to well rehabilitation and management for 483 wells

2.11. The establishment of herder groups has led to many other significant initiatives, indicating the usefulness of the groups to their livelihood development, such as:

• Setting up their own internal savings and loans funds and initiated other self-help activities • Accessed RLFs for income-generating activities in virtually all of the 142 soums of the eight core aimags, mainly for felt making and vegetable growing • With cooperative herding have been able to diversify other activities. There are anecdotes from several areas of pooling of small animal herding, which has been allocated to younger members. • Show mutual support activities within groups, including providing help to poorer members. • Feed production and distribution of herder-led innovations in demonstration areas.

2.12. An average recovery rate on herder loans is 82.2% (from MIS data source, December 20, 2007). Subsidized loans do not provide a sustainable basis for providing credit to herders or herder groups, as they undermine normal credit channels provided through commercial banks. Under SLPII, more herder-tailored loans will be developed and made available to herders and herder groups under the Micro-Finance Development component.

4. Hay and Fodder Enterprise Development

2.13. Twenty one hay and fodder-making enterprises/cooperatives in Ulaankhus soum, Bayan- Olgii aimag, Tarialan, Ondorkhangai, Zuungobi and Baruunturuun soums, Uvs aimag, Ugtaaltsaidam, Tseel and Jargalant soums in Tuv aimag, Kherlen soum Dornod aimag, Adaatsag soum in Dundgovi aimag and Dalanzadgad, Gurvantes, Nomgon soums in Omnogobi aimag were provided soft loans. The project was initially providing equipment to enterprises. Uptake was relatively slow and there was greater demand for cash. Based on the number of requests from hay and fodder enterprises, the provision of equipment loans solely was lifted (the DCA was

31 amended in May 2005), and the process has accelerated since then. The repayment of loans is in accordance with the loan agreements and repayment schedule.

2.14. The rehabilitation of emergency hay and fodder storage facilities (34 storage houses) in 8 aimags including inter-aimag otor grazing reserves area in Kherlenbayan-Ulaan, Kentii aimag and Argalant, Gobi-Altai aimag has been completed under phase I of the SLP. Tuv aimag did not have an aimag level hay and fodder storage before the SLP investment, hence the new one was built (with 130 tons of hay storage capacity) in Bayan soum, providing an opportunity to distribute hay and fodder from the storage house to 10 different neighboring soums under emergency situation. Overall, the project more than doubled hay storage and tripled forage capacity in pilot aimags. These facilities are being incorporated into annual contingency plans. However, there is little information on the sustainability and effectiveness of use, especially by more vulnerable households. It is noted that establishment of soum hay and fodder reserves has not been popular because of low hay yields and climatic factors. No soum or bag funds for reserves have been established by local authorities, and fodder conservation is largely done by herders.

Component 2. Micro-Finance Outreach ($6.01 Million / $5.95Million)

1. Micro-Finance Development Fund

2.15. Approximately $7.13 million had been allocated to the PFIs as wholesale loans from MDF, from which a total of $17.0 million has been on-lent to rural residents (including revolving re-disbursements). A total of 29,021 sub-loans had been disbursed, comprising 141,602 beneficiaries (direct and indirect) in 21 aimags and Bayangol district of Ulaanbaatar city. The amount includes the World Bank’s financing of US$ 4.3 million, which was disbursed through 8 tender announcements for the selection of PFIs, and the loan source repaid from the PFIs.

Table A-2.2. “MDF’s loan disbursement” as of IV quarter of 2007

Total loan size disbursed 29,659,799,263₮ Loan size financed from the Micro- 8,423,853,962₮ Finance Development Fund 21 aimags and Bayangol district of Project selected areas Ulaanbaatar city

Anod, Khaan, Xac, Zoos, Savings, Mongol Post, Capital, Capitron, Credit, UB City Name of participating financial banks, Assets Invest, ABTS, Battugrug, City institutions Foundation, Capmon, Credit Mongol, New

Asia, Ireedui Invest NBFIs

Maximum size of sub-loan 10,000,000₮ Minimum size of sub-loan 30,000₮ Average size of sub-loan 1,022,011₮ Monthly average interest rate of sub- 2.38% loan

32 Income generating 25366 27,363,149,706₮ 92.3% activities sub-loan Purpose of Consumption 3655 2,296,649,557₮ 7.7%

Total amount 29021 29,659,799,263.0₮ 100%

2.16. As of 31 December 2007, a total of 29,659,799,263.0MNT of loan proceeds were disbursed. 17 PFIs, which signed the Subsidiary Loan Agreement with the MDF, have invoiced the loan source equivalent to 8,423,853,962.0MNT. This is 99.09% of the loan fund first disbursed from the World Bank to the MDF and 94.3% of the loan fund disbursed from the principal payment to the PFIs respectively.

The following table illustrates the main beneficiaries and breakdown of mail sub-borrowers. Table A-2.3 - “MDF’s beneficiaries” as of IV quarter of 2007 Total number of beneficiaries. Out of which: 141602 1 Direct beneficiaries 33203 2 Non-direct beneficiaries 108399 29021 Total number of sub-borrowers. Out of which: % out of total Number number of sub- borrowers 1 Male sub-borrowers 17933 61.7% 2 Female sub-borrowers 11088 38.3% 3 Poor and low income sub-borrowers 13665 47.0% 4 Herders 7618 26.2% 5 Repeated sub-borrowers 17489 60.2% 6 First-time sub-borrowers 11532 39.8% 7 UB city sub-borrowers 644 2.2% 8 Aimag center sub-borrowers 8877 30.7% 9 Below soum level sub-borrowers 19500 67.1%

2.17. As of IV quarter of 2007, by re-disbursement total of 18,595,437,290 MNT (increased amount) of micro loan were provided to 18,585 people. As of 31 December 2007, in the project framework, by disbursement and re-disbursement total 29,659,799,263.0MNT in micro loans were provided to 29,021 people.

Picture A-2.1 - Percentage of target group in total number of sub-borrowers

33 2.18. The maximum size of loan provided was 10.0 million MNT, the minimum size was 30.0 thousand MNT, the average was 1,022,011MNT.

2.19. As of IV quarter of 2007, the repayment of micro loans disbursed to sub-borrowers by the total amount of loan disbursement and redisbursement was 98.9%, while the MDF’s wholesale loan repayment was 100%.

2. Strengthening of Revolving Loan Funds (RLFs)

2.20. This subcomponent was envisaged to improve the operational performance and financial health of the existing, local government-owned and -operated micro-credit RLFs that were created at the soum level under NPAP. The conditions for disbursement of IDA funds allocated to the provision of sub-loans by the selected RLFs stipulate that the Borrower: (i) would establish a MIS adequate to monitor micro-finance portfolio quality; and (ii) prepare a detailed Action Plan for the use of these funds, acceptable to IDA, with the objective of strengthening the selected RLFs. In 2003, the RLF review identified significant problems in the quality of the overall portfolio. The recovery rate of short terms loans disbursed was around 63%. Almost 60% of the sums operating RLFs reported recovery rates of below 70%, with some starting as low as 24%. Close to 77% of total outstanding loans were considered to be non-performing loans. On the basis of these findings it was decided to cancel the support to RLFs, and re-allocate the resources to MDF.

3. Index-Based Livestock Insurance Scheme

2.21. The development objective of the pilot program is to ascertain the viability of index- based livestock insurance in Mongolia. The IBLI pilot program started on September 2005, and has already completed 2 sales seasons (with the third one underway). The IBLI program is being piloted in three selected aimags: Bayankhongor, Khentii, and Uvs.

2.22. The insurance scheme is based on an innovative combination of self-insurance, market- based insurance and social insurance. Herders retain small losses that do not affect the viability of their business, while large losses are transferred to the private insurance industry and catastrophic losses are transferred to the government. The private sector product where insurance companies retain risk is known as the Base Insurance Product (BIP). The BIP is written on a layer of risks using as the index the best estimates of the soum-level mortality (e.g., soum mortality rates between 6 to 30 percent in Uvs aimag). The government compensates herders for the most extreme losses with the Disaster Response Product – DRP (e.g., losses between 30 percent and 100 percent for Uvs aimag). The DRP also addresses a level of risk that is typically subject to cognitive failure, meaning catastrophic risks typically fall outside the scope of planning and risk management strategies.

2.23. Payments are based on estimates of the soum level livestock mortality rates from January through May. Indemnities are generally paid in late July or early August after the estimates of mortality are obtained from a newly developed mid-year livestock survey.

2.24. Index-based mortality insurance is not linked to the dzud event itself, but to the outcome that is of most concern – large numbers of livestock mortality. Importantly, it provides strong incentives to individual herders to continue to manage their herds so as to minimize the impacts of major livestock mortality events (i.e. individual herders receive an insurance pay-out based on regional mortality, irrespective of their individual losses).

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2.25. The IBLI pilot program has four major components: (i) Implementation of the IBLI Pilot; (ii) Promotion and Public Awareness; (iii) Institutional Capacity Building; (iv) Monitoring and Evaluation.

2.26. By many accounts, the pilot project has exceeded expectations:

• BIP sales are greater than anticipated: Around 2400 policies were sold in all 56 pilot soums in 2006 sales year (9% of eligible herders) and over 3700 policies were sold in 2007 (14% of eligible herders) ; • 50% more herders purchased BIP in year two than in year one; • 100% of herders who were entitled to indemnity payments in 2007 received them; • Four insurance companies participated with 153 sales agents in the 2006-07 season; • Capacity building with insurance companies has shown significant progress; • Over 90% of herders in the pilot aimags have heard of IBLI; • Herders have a very positive view of the project, including confidence that the indemnity payments will be made; • Around 60% of herders express an interest in purchasing IBLI products; • IBLI MIS Software which consists of Data Entry, Portfolio Risk Assessment and MIS components has been developed and proven to be instrumental in implementing the program and understanding the risk; • Lenders have offered lower interest rates and better terms on loans to IBLI insured herders; • IBLI designated accounts for the LIIP, BIP reserve, and DRP reserves were opened and administered using Khaan Bank.

Component 3. Local Initiatives Fund ($9.16 million /$12.03 million)

1. Local Initiatives Fund

2.27. Since the beginning of the SLP I project in July 1, 2002 until December 31, 2007 1, 729 sub-projects in health, education and infrastructure development were implemented in all pilot soums and duuregs. For the implementation period of SLP I 7, 814 million tugrugs were disbursed (including local contribution) for the sub-projects in 8 pilot aimags and 1 duureg of UB, of which 26% for health, 57% for education, and 17% for infrastructure sector . Over 10% of the LIF is funded by contributions of local communities and individuals.

2.28. Between the start of the LDF in July 1, 2002 and December 30, 2007, the total of 1,602 projects with the total funding of 7,137 million tugrugs were implemented in 13 non-core aimags and 8 duuregs.

Table A- 2.4 - The LIF and LDF sub-projects have been implemented under SLP-I project nationwide Number of Education Project finance /million MNT projects 1 Rehabilitation and furnishing of schools 495 2,596 Rehabilitation and furnishing of school 2 dormitories 478 2,424

35 Rehabilitation and furnishing of 3 kindergartens and pre-schools 670 3,131 Sub-total 1643 8,151 Health Rehabilitation and furnishing of maternal 1 rest home 77 131 375 2 Rehabilitation and furnishing of hospitals 1,831 3 Renovation of medical equipment 156 602 4 Transportation for bagh doctors 395 529 Provision of ambulance for soum/duureg 5 hospital 85 644 Sub-total 1088 3,737 Infrastructure Repair and maintenance of rural roads and 1 bridges 80 343 Rehabilitation and improvement of public 2 bath house 121 755 Rehabilitation of wells and improvement of 3 potable water quality 153 734 Sub-total 354 1,832 Environment and other Rehabilitation of flood barrier and 1 improvement of public facilities such as cultural center, library, etc. 246 1,231 Sub-total 246 1,231 TOTAL 3331 14,951

2.29. Investment in the education, health, infrastructure within the LIF/LDF component resulted in the improvement of access of the rural community to basic social services. Project activities encompassed 91% of all secondary schools, 89% of all kindergartens and school dormitories improving learning and living conditions of the rural children. Project activies included:

• Investments in education by implementing rehabilitation, facilities improvement projects in 561 secondary schools, provided 575,552 childrens with appropriate learning environment, innovating classrooms in almost 100 schools. Out of 575,552 children 11,8692 are poor, 31,6333 are girls. 8,276 drop-out- children returned to the schools by improving facilities at the non-formal educational centers and living conditions in school dormitories. • 111,049 children, out of which 77,958 are from herders’ and 30,784 are from poor households, improved their living and learning conditions in dormitories. They were provided with warm blankets and sheets, new beds and withrows, tables and facilites for reading and playing, learning rooms, baths and washing rooms. As a result the number of herder and poor children living in dormitories increased by 12,762. • Rehabilitation, facilities improvement, and mobile ger kindergarten projects have been implemented to improve appropriate learning conditions for 94,183 children, out of

36 which 23139 are from poor families. As a result, 12,778 children have been provided with a quality learning environment. As a result of the project investments in the extention of kindergarten buildings, furnishing, and the provision of new equipments for kitchens, 12,778 young children were newly enrolled. • The project had a major impact on the quality and access of rural communities to basic health services. The project has reached almost all soum hospitals. In total, 85 ambulances were distributed to aimag and soum center hospitals, while 450 bagh doctors were provided with motobikes which improved family based health services by increasing the number of visits to families. Almost 180 soum hospitals were provided with ultrasound and other diagnostic equipments. • The number of women served by maternal rest room reached 24,945 and the number of home births decreased significantly. • Diagnostic services of the hospitals in remote soums improved and the number of people diagnosed by the new equipment,(ultrasound and blood testing), increased from 1,055 in 2005 till 7,991 in 2007. • In total, 414 doctor and nurses learned how to maintain new medical equipments and improved their professional skills.

2.30. The following contributed to the improvement of living conditions of rural communties: 112 projects on the rehabilitation, building, facilities improvement of public baths, 176 projects on the rehabilitation of drinking water wells, 23 projects to improve heating of public service places, 85 projects to build, rehabilitate local roads, bridges, 16 projects in environment such as foresting, fencing of springs, rivers, etc

2.31. In total, 1,561 people were provided with temporary jobs by participation in the above projects in reconstruction of roads, bridges and other reconstruction work - out of these 1,561 people, 1,331 are poor. The above activities positively influenced the overall stabilization of migration to aimags from soums, and from aimags to cities. From 2003 to 2007, 35 new public service centers were established in remote areas.

2. Training and Capacity Building

2.32. A variety of training and capacity building activities have been carried out during the implementation of the LIF component. The fact that 3,330 sub-project activities have been implemented according to PIM criteria demonstrates that the HLSPO staff, aimag and soum councils and bag leaders have a clear understanding of LIF operational procedures and are capable of mobilizing community participation and of eliciting sub-project proposals. Two study tours were organized for aimag secretaries and members of the LIF working group to learn from the experience of other countries about community driven development mechanisms and outcomes.

2.33. A major community mobilization program was initiated with the support of the JSDF grant (approximately US$450,000) in two phases. The first phase was implemented in 16 pilot soums of 8 aimags; the second phase expanded into 143 soums of 8 amiags. Under the project, local community mobilizers were selected in each soum and that person collaborated with the soum HLSP council members and the council secretary to mobilize local citizens. According to the research conducted among the communities in the pilot soums, 82.8% of the population has been supported by project related information, and about 40% of the population covered by the project participated in the prioritization and selection process of the soum sub-projects.

37 3. Fiscal Decentralization Initiative

2.34. Based on the activities undertaken in the scope of the FG sub-component, there was research conducted on Fiscal decentralization and local public finances in Mongolia. The main purpose of the research was to define the governance structure of soums and aimags, their revenue structures and main financial constraints, describing local budgetary process and expenditure structures, main shortcomings of local public finances and submit optional proposal for fiscal decentralization process. The issues paper has been prepared, disseminated and debated at a workshop held at MOFE in 2005 and an action plan for pilot action research on fiscal decentralization was prepared. The Government though after considering the issues and options, decided not to proceed with pilots. The original design of the sub-component was based on an assumption of greater progress being made by the Government on decentralization. However, due to a combination of factors including the government’s limited financial resources for soum and aimag levels, fiscal decentralization was reduced.

2.35. At the mid-term of the project, it was decided that the fiscal decentralization component of the project should be refocused to enhance state-citizen engagement in fiscal decision making, transparency and accountability. The sub-component was renamed “local fiscal governance”. The second research was to investigate the fundamental ways to effectively manage project funds with the participation of communities and individuals. The report includes frameworks for conducting this same research in the second phase of the Project. The report specifically describes how and where the research should be performed. It was also presented to all the pertinent organization.

Component 4. Project Management and Policy Support ($1.25 million / $2.71 million)

1.Information dissemination and communications.

2.36. Contracts were signed with five daily newspapers (“Unuudur-Today, Ardyn Erkh- People’s Right, Mongolyn Medee-News of Mongolia’, Zuuny Medee-Century’s News”, “Urdiin sonin – Daily News”), Mongolian National Public Radio, “Channel 25” TV, etc. A variety of events were organized. More than 50 daily materials were published during 2007 only, and five 20 minute radio programs focused on aimags were broadcast on national public radio. Mass media caravans were organized in pilot aimags. The project participated in the Mongolia Development Marketplace. Different kinds of contests were organized, e.g. the best article on the topic of “My contribution to livelihood” among secondary school students. More that MNT6.6 million was spent on local mass media campaigns.

Project Orientation and Training

2.37. Orientation training for Governors (in both core and non-core aimags) were organized, which then followed with detailed orientation of pilot aimags only. Several consultative meetings on SLP at national level were organized. 8 experience sharing workshops and training among core aimags were organized. Results based trainings, workshops and seminars were organized for all 143 soums in 8 aimags.

Capacity building program for HLSPO was also implemented, including trainings abroad and study tours.

Monitoring and Evaluation

38 2.38. The main outputs under this sub-component are: (i) a detailed data-base of the project’s outcomes for the period 2003 – 2007; (ii) a synthesis of key findings of the pilot project on participatory M&E in eight pilot aimags; and (iii) preparation of the integrated and outcome- based M&E system for the SLP II to support the second phase of the Program. Improvement to the M&E system which occurred after the introduction of the Participatory Monitoring and Evaluation (PM&E), with support of the JSDF grant. It was first introduced in 16 pilot soums and was afterwards scaled up to include all 143 soums of 8 pilot aimags. Below is the list of training and capacity building activities carried out for introduction and expansion of the PM&E system:

Table A-2.5: Training programs for community mobilizers and community members on PM&E Training When Participants Where The first PM&E Aug-Sept 380 people 16 pilot soums training 2005 PM&E training Oct 2005 31 aimag/UB/HLSC secretaries HLSPO, Ulaan Baatar CM training Nov 2005 Community mobilizers from 16 Ulaan Baatar pilot soums PM&E training Dec 2005 136 non-pilot soum HLSC Center of 8 pilot secretaries aimags PM&E Feb-April 288 (HLSC secretaris from all Center of 8 pilot 2006 pilot aimags and soums, aimags community mobilizers from 8 pilot aimags) PM&E training and 22 March 21 (Aimag/duureg HLSC HLSPO, Ulaan workshop 2006 secretaries) Baatar PRM M&E Apr–May, 370 people (soum loan officers, At the soum level 2006 PRM facilitators, citizen’s representatives, NGO representatives, soum HLSC members) PM&E April-July Selected community At the soum level 2006 supervisors and evaluators, soum HLSC secretaries, community mobilizers in 143 soums (around 25/soum)

39 Annex 3: Economic and Financial Analysis

3.1. The economic analysis presented in the PAD was not based on a cost/benefit analysis (because most of the benefits were considered to be unquantifiable) or on an assessment of cost effectiveness. Instead, that was described as “alternative approaches and illustrative analysis” was carried out for one component and several sub-components.

3.2. Pastoral Risk Management. The benefits anticipated from the component were the reductions to be achieved in livestock losses caused by dzud. Such losses include direct costs (the value of livestock) and wider economic and social costs (e.g., reductions in cashmere wool and milk production, tree-felling for fuel to replace dungas the fuel in ger stoves). The analysis concentrated on the potential impact of PRM on livestock losses, and assumed that the adoption on a nation-wide basis of the PRM strategy would reduce losses in dzud years to the long-term average rate of mortality (i.e., eliminating completely any “spikes” in mortality caused by the dzud event). There was no major dzud over the lifetime of the project, and while there was an almost 45% reduction in livestock mortality in pilot aimags, it is difficult to attribute it to project interventions.

3.3. Local Initiatives Fund. Conventional ex-post economic analysis was carried out in the LIF component. The analysis covered a sample of 100 sub-projects, such as school and dormitory rehabilitation, school and dormitory refurnishing, kindergarten rehabilitation, rehabilitation of school heating systems, public bath houses, hospital rehabilitation, drinking water supply and maternal rest home refurnishing.

3.4. The findings of this analysis indicate that most sub-projects have a good cost benefit ratio and economic rate of return (ERR), ranging from 6% (dormitory heating system) to 30% (ambulance car for soum hospital) with an average of 20%. Very few projects appear to have a demonstrably low cost efficiency level. This may be partially because the need is so high that almost any type of community initiated project is likely to be useful. Only one investment has a negative ERR (public bath houses), mostly because of the combination of low user rates and high running costs.

Table A – 3.1 Case 1 Case 2 Case 3 Case 4 Ambulance car School dormitory Potable water Public bath for soum hospital heating well repair construction renovation Net investment - 7,116,600 - 3,610,000 - 4,631,242 -5,786,372 (MNT) Net benefit/year 2,541,000 781,080 1,334,797 477,800 (MNT) ERR (%) 30 6 25% - 6 Location Altantsugts Altantsugts Jargaltkhan Delgerkhaan soum, Bayan soum, Bayan soum, Khenti soum, Khenti Ulgii Ulgii Population 3,460 3,460 2,043 2,339

3.5. Other sub-projects that probably have a high rate of return but that are difficult to measure include materials and equipment in kindergartens and dormitories. The investment is relatively small but the benefits are qualitatively estimated to be high.

40

3.6. The average number of beneficiaries in the education sector is comparatively lower than in the health, infrastructure and other categories. This does not mean though that the later are more cost efficient. The average cost per direct beneficiary of education sub-projects is about 40,000 MNT. Due to high variations in the number of beneficiaries in health sub-projects, the cost per direct beneficiary varies from MNT168 to 134,336. The average for the sector projects is about MNT 34,000. It is lower for infrastructure projects, about MNT10,000.

3.7. The findings of the analysis suggest that delivery of services through sub-projects supported by the component is cost effective. As compared to similar government civil works, the duration from project submission to project completion is relatively shorter for projects supported under the SLP I. As compared to Government projects, the LIF/LDF tender process is more localized which is perceived as better than government systems. The government often selects Ulaan Baatar based companies, which results in less efficient implementation monitoring. The LIF monitoring is considered better even where local citizens do not have the technical competency to carry it out. Table A- 3.2 Project LIF/LDF Government Size (US$) LIF: 8,000 Small: 8,561 LDF: 4,000 Large: 171,232 Initiators Local bagh residents Local administration Approval Soum/ aimag secretariat Ministry of Finance and Line Ministries Proposal duration Within 1 year > 2 years Bidding Soum/aimag secretariat Line Ministry committee Bid criteria Local communities, if <5,000 Legal entity with license for civil Legal entity with license for civil works works Bid participation of 6 times, no > Quality consideration of previous than 3 bid wins/year work

Bid process Min 3 bids Min 3 bids Lowest cost Lowest cost Guarantee 1 year No guarantee Contractors Local participation, if

3.8. Microfinance Outreach. Economic rates of returns for a selected sample of income generating activities supported under the MDF indicate a good return on investments, according to findings of an analysis of about 70 sub-loans in February 2007. The sample included loans from Khaan Bank, Xac Bank, Credit Mongol and CapMon NBFI, covering four aimags (Uvs, Bayankhongor, Dundgovi, and tuv). The average loan size of the sample was between

41 MNT1,100,000 to MNT1,350,000 and included income generating activities only (trading, services, manufacturing and animal husbandry). According to the study, returns on investments from loans varied between around 20 for trading to around 50 percent for services, manufacturing and husbandry. In a different study carried out in June 2006, an attempt was made to measure the impact of the loans on the households’ income and livelihoods. The survey covered a sample of 266 sub-borrowers in 48 soums of all eight pilot aimags. According to the study, about 96% of borrowers have experienced changes in their livelihoods, out of which 76% had an increased monthly monetary income, 45% purchased some property, and about 25% borrowed for paying tuition fees, etc. The average monetary income increased by almost 30%, while those who borrowed for income generating activities saw a 36.2% increase in their income. Table below provides the details on some selected indicators.

Table A - 3.3 Indicators Female Type of loan Repeate Reside Various Industry Agricultu Consump d nts of trade and trade ral tion, borrower soum (non- leasing, s agricultural tuition ) fee The 96 112 125 63 10 4 151 borrowers (47.5%) (55.5% (61.9%) (31.2%) (4.9%) (2%) (74.8%) who have ) increased the monetary income/mon th The 45 78 54 23 25 18 87 borrowers (37.5%) (65%) (45%) (19.2%) (20.8%) (15.0%) (72.5%) who have purchased a movable and immovable property The 34 42 37 13 10 9 52 borrowers (49.3%) (60.9% (53.6%) (18.8%) (14.5%) (13.1%) (75.4%) who have ) paid various fees The 110 146 133 68 32 22 182 borrowers (43.1%) (57.3% (52.2%) (26.7%) (12.5%) (8.6%) (71.4%) who have ) had an improvemen t in their livelihood

3.9. An increase in monthly monetary income improvement means stabilization of the livelihood sources. Survey results argue that women were more efficient in this regard and are better loan utilizers. Among the factors affecting monthly monetary income improvement the

42 most influential variable turned out to be the loan amount, the lowest influential variables are loan term and time.

43 Annex 4: Bank Lending and Implementation Support/Supervision Processes

Task Team members

Responsibility/ Names Title Unit Specialty Lending Lead Social Development Robin Mearns SDV Task Team Leader Specialist Guzman Garcia-Rivero Consultant EASRE Operations Advisor Guo Li Sr. Agricultural Economist EASRE Economist Sr. Rural Development Nathan Belete SASDA Microfinance Economist Environmental Anthony Whitten Sr. Biodiversity Specialist EASRE Assessment Behdad Nowruzi Financial Management Mary Judd Sr. Anthropologist EASSO Anthropologist Nipa Siribudhamas Financial Management Jinan Shi Sr. Procurement Specilaist EAPCO Procurement Sr. Social Development Keith McLean ECSSD Decentralization Economist Hoi-Chan Nguyen Sr. Counsel LEGES Lawyer Lisa Bhansali Sr. Public Sector Specialist AFTPR Lawyer Rosa Muleta Consultant LOADM Disbursement Cornelis de Haan Consultant ARD Peer Reviewer Daniel Sellen Sector Leader AFTAR Peer Reviewer Sr. Private Sector Michael Goldberg LCSPF Peer Reviewer Development Spec. Evelyn Bautista Laguidao Program Assistant EASRE Administrative Support Cecilia Tan Program Assistant IEGCR Administrative Support Cecilia Belita Sr. Program Assistant SASSD Administrative Support Kathryn Cherrie Program Assistant GEF Administrative Support Pastoral Risk Jeremy Swift Consultant Management Jerry Skees Consultant Index Insurance Pastoral Risk John Morton Environmental Specialist EASRE Management Environmental Dennis Sheehy Consultant Assessment Suvira Chaturvedi Consultant Local Initiatives Fund Enjiang Cheng Consultant Micro-finance S. Ganbold Consultant Micro-finance B. Enkhbat Consultant Local Initiatives Fund Pastoral Risk Daniel Miller Consultant Management N. Batjargal Consultant Pastoral Risk

44 Management Environmental Doug Smith Consultant Assessment Environmental J. Byambadorj Consultant Assessment Environmental Olexi Kabyka Consultant Assessment Natasha Pairaudeau Consultant Social Assessment R. Gantumur Consultant Social Assessment E. Tungalag Consultant Social Assessment Alice Carloni Consultant FAO/CP Team Leader Stephan Baas Consultant FAP/CP PRM Joe Remenyi Consultant FAO/CP Microfinance Howard Johnson Consultant FAO/CP LIF Project Management Seamus Cleary Consultant Support

Supervision/ICR Pastureland Davaanyam Bayartsogt Consultant EACMF Management Senior Rural Development Nathan M. Belete SASDA Task Team Leader Economist Senior Financial Management Yi Dong EAPCO Financial Management Specialist Daniel R. Gibson Senior Social Scientist EASCS Social Scientist Andrew D. Goodland Agricultural Economist EASRE Task Team Leader Ruth Janice Grosvenor-Alsop Senior Social Scientist PRMPR Social Scientist Bryan Kurey Temporary PRMPR Xiaoping Li Senior Procurement Specialist AFTPC Procurement Natural Resources Gayane Minasyan Environmental Economist EASRE Management Lead Social Development Robin Mearns SDV Task Team Leader Specialist Uri Raich Urban Specialist AFTU1 Fiscal Decentralization EASEN- Pastoral Risk Dennis P Sheehy Consultant HIS Management Pastoral Risk Tara M. Shine Consultant EASRE Management Gerelgua Tserendagva Procurement Analyst EAPCO Procurement Monitoring and Anis Wan Operations Analyst EASCS Evaluation Senior Bio-diversity Anthony J. Whitten EASRE Environment Specialist Steven William Oliver Senior Agriculture Economist EASRE Micofinance James Hancock Consultant FAO LIF

45 Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ thousands (including No. of staff weeks travel and consultant costs)

Lending

FY00 12 49.61 FY01 31 137.97 FY02 68 481.26 FY03 4.67 FY04 1 4.29 FY05 2 2.59 FY06 0.00 FY07 0.00 FY08 0.00

Total 114 680.39 Supervision/ICR FY00 0.00 FY01 0.00 FY02 2.28 FY03 33 205.43 FY04 54 152.74 FY05 46 148.31 FY06 49 136.53 FY07 26 103.30 FY08 2 187.31

Total 210 935.9

46 Annex 5: Summary of the Borrower’s ICR and/or Comments on the Draft ICR

5.1. Borrower’s comments were provided on Micro-finance outreach component mostly:

5.2. Ministry of Social Welfare and Labor • The project shall implement the package of programs about loan utilization and business ability. It’s positively affect to the loan repayment, repayment rate, service quality and optimal utilization.

5.3. Financial Regulatory Commission (FRC) • Involve some SCCs which have the licenses and have been permanently serviced financial products in rural areas with a view to classically develop microfinance services and expand the outreach in rural areas. • Pay attention to trainings and information in microfinance subject to people and support the relative projects of FRC for the reason that will be reinforced the capacity of administrative and professional organizations, expand the outreach of financial services to people and improve the household livelihood through the improvement of public financial education. • As related the issue above, support to build the training center under the FRC and solve the financing needs. • Consider PFIs’ sub-loan interest rate reduction when selection procedures take place.

5.4. Implementing Agency. From the satisfactory community assessment of LIF/LDF activities we can assume that the project had indirect impact on the stabilization of the population migration in the surveyed aimags which is comparatively stable as 25127 and 24775 in pilot and 18361 and 18060 in 2003 and 2007 accordingly.

47

Annex 6: List of Supporting Documents

Sustainable Livelihoods Project: Project Appraisal Document: Report No. 24155-MOG: May 15, 2002

Sustainable Livelihoods Project: Development Credit Agreement: Credit No. 3657-MOG: June 21, 2002

Index-Based Livestock Insurance Project: Project Appraisal Document: Report No. 32220-MN: May 2, 2005

Second Sustainable Livelihoods Project: Project Appraisal Document: Report No. 38353-MN: May 29, 2007

Institutionalizing Pastoral Risk Management in Mongolia: Lessons Learned: FAO: 2007

Participatory Monitoring and Evaluation: Final Report: Helsinki Consulting Group: June 2007

Cost Sharing of LIF-Financed Sub-Projects: Yadmaa Byambasuren and Mei Zegers: November 1, 2006

Feasibility Studies of Local Initiatives Fund : Costs and Benefits of LIF Sub-Projects Financed Through the Sustainable Livelihoods Project: Batsaikhan Zagdragchaa and Mei Zegers: November 1, 2006

Changes in the Livelihoods of Sub-borrowers of MDF (survey report): Davaadorj Bayarsaikhan: June 2006

Impact Assessment of Microfinance Development Component: “ME” Consulting LLC: 2006

Evaluation of the Risk Resilience of Herding Households in Pilot Aimags: “Garts” NGO: 2006

Assessment of Community Satisfaction by LIF Investments: “MonConsult” LLC: 2006

48 IBRD 31854

88º 92º 96º 100º 104º 108º 112º 116º 120º

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Khövsgöl RUSSIAN FEDERATION Nuur

To Ulan-Ude

Uvs To Borzya Nuur Ulaangom DARKHAN-UULDARKHAN-UUL TaryalanTaryalan BaruunturuunBaruunturuun KHÖVSGÖLKHÖVSGÖL Egiyn Gol UlaankhusUlaankhus UVSUVS Tesiyn Gol Mörön Mörön Khovd Gol Selenge Darkhan Ölgii Hyargas ORKHONORKHON SELENGESELENGE Bayan-UulBayan-Uul Nuur DORNODDORNOD

BBAYAN-AYAN-AN- Onon Bulgan 48º ÖLGIIÖLGII Ideriyn Gol 48º ZAVKHANZAVKHANVKHAN Gol Khovd Orkhon KHENTIIKHENTII Choibalsan DeluunDeluun Khar Us Khar BULGANBULGAN UgtaaltsaidamUgtaaltsaidam Nuur Nuur ULAANBAATAR Döröö Nuur Zavkhan Gol Uliastai ARKHANGAIARKHANGAI

Öndörkhaan MatadMatad Tsetserleg TÖVTÖV

BayanunjuulBayanunjuul KHOVDKHOVD GOV'SUMBERGOV'SUMBER Baruun Urt GaluutGaluut SUKHBASSUKHBAATARUKHBAATARAR Altai BombogorBombogor Arvaiheer

Bayankhongor KhairkhandulaamKhairkhandulaam Dundgov' O GOV'ALTAIGOV'AGOV'ALTAIAI n g DUNDGOV'DUNDGOV' iy GurvansaikhanGurvansaikhan n

Guchin-UsGuchin-Us G ÖndörshilÖndörshil o Sainshand

l ÖVÖRKÖÖVÖRKHANGAIVÖRKHANGAIHANGAI

BBAYANKHONGORAYANANKHONGORKHONGOR 44º 44º DORNOGOV'DORNOGOV'

ManlaiManlai SevreiSevrei To Hohhot Dalanzadgad

ÖMNÖGOV'ÖMNÖGOV' MONGOLIA PAVED ROADS SUSTAINABLE LIVELIHOODS PROJECT GRAVEL ROADS IMPROVED EARTH ROADS CORE AIMAGS EARTH ROADS RAILROADS RIVERS CORE AIMAGS AIMAG (PROVINCE) CAPITALS SevreiSevrei PILOT SUMS (RURAL DISTRICTS) SELECTED CHINA FOR THE FIRST YEAR OF PROJECT NATIONAL CAPITAL 0 100 200 300 AIMGA (PROVINCE) BOUNDARIES

KILOMETERS INTERNATIONAL BOUNDARIES

92º 96º 100º 104º 108º 112º 116º

APRIL 2002 IBRD 31855

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0 100 200 300 400 500

KILOMETERS

This map was produced by the Map Design Unit of The World Bank. RUSSIAN FEDERATION The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

n.a. - 24.1% Ulaangom DARKHAN-UULDARKHAN-UUL UVSUVS KHÖVSGÖLKHÖVSGÖL 4.5% - 11.9% 14.5% - 6.4% BAYAN-ÖLGIIBAYAN-ÖLGIIAN-ÖLGII Mörön Ölgii Darkhan ORKHONORKHON SELENGESELENGE 5% - 5.9% DORNODDORNOD

48º Bulgan n.a. -17.7% ZAVKHANZAVKHANVKHAN 48º 4.7% - 23% KHENTIIKHENTII Khovd 16.3% - 29.6% BULGANBULGAN ULAANBAATAR n.a. -12.4% Choibalsan ARKHANGAIARKHANGAI Uliastai TÖVTÖV Öndörkhaan 6.6% - 20.5% KHOVDKHOVD Tsetserleg GOV'SUMBERGOV'SUMBER Baruun Urt

7.4% - 36% 2.3% - 7.6% Arvaiheer SUKHBASSUKHBAATARUKHBAATARAR Altai Bayankhongor DUNDGOV'DUNDGOV' n.a. -14.5% GOV'ALTAIGOV'AGOV'ALTAIAI 18.3% - 12.3% Dundgov' 3.2% - 5.6% 8% - 11.8% Sainshand ÖVÖRKHANGAIÖVÖRKÖVÖRKHANGAIHANGAI 30.7% - 4.5%

Absolute number of BAYANKHONGORBAYANANKHONGORKHONGOR Aimag adult animals lost 44º DORNOGOV'DORNOGOV' 44º ZAVKHAN 969.800 ÖVÖRKHANGAI 806.100 MONGOLIA n.a. - 7.9% BAYANKHONGOR 478.800 DUNDGOV' 707.700 SUSTAINABLE LIVELIHOODS PROJECT ARKHANGAI 617.500 Dalanzadgad TÖV 561.100 UVS 374.400 IMPACTS OF DZUD, 1999–2001 ÖMNÖGOV' 237.600 BULGAN 153.400 ÖMNÖGOV'ÖMNÖGOV' GOV'SUMBER (urban) 43.500

Percentage of loss of 7.1% - 8.2% KHÖVSGÖL 635.700 adult animals/year 7.1% - 8.2% SUKHBAATAR 240.100 DORNOD 231.500 1999/2000 2000/2001 KHENTII 206.000 DORNOGOV' 72.800

Severely affected in 1999/00 and 2000/01 BAYAN-ÖLGII 145.500 KHOVD 183.500 Moderately affected in either 1999/00 or 2000/01 GOV'-ALTAI 181.700 and severely affected in the other year SELENGE (cropping) 53.100 Severely affected in either 1999/2000 or 2000/01 ORKHON (urban) 17.800 AIMAG (PROVINCE) CAPITALS DARKHAN-UUL (urban) 14.200 Moderately affected in both years UB (urban) 16.300 NATIONAL CAPITAL CHINA Moderately affected in either 1999/00 or 2000/01 and not affected in the other AIMAG (PROVINCE) BOUNDARIES Footnote: The risk ranking of aimags based on a 60-year data base categorizes: - Area of high risk for dzud: INTERNATIONAL BOUNDARIES Bayan-Ölgii, Dornogov', Dundgov', affected is defined as losses > the long term average annual loss of Gov'-Altai,Ömnögov', Övörkhangai, Khövsgöl and Zavkhan; animals (which is 2%) - Area of medium risk of dzud: Arkhangai, Bayankhongor, Bulgan, Khovd and Uvs. 92º 96º 100º 104º 108º 112º 116º

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RUSSIAN FEDERATION

Ulaangom DARKHAN-UULDARKHAN-UUL UVSUVS KHÖVSGÖLKHÖVSGÖL BAYAN-ÖLGIIBAYAN-ÖLGIIAN-ÖLGII Mörön Ölgii Darkhan ORKHONORKHON SELENGESELENGE DORNODDORNOD

Bulgan 48º ZAVKHANZAVKHANVKHAN 48º KHENTIIKHENTII BULGANBULGAN Khovd Choibalsan ARKHANGAIARKHANGAI ULAANBAATAR Uliastai TÖVTÖV Öndörkhaan

KHOVDKHOVD Tsetserleg GOV'SUMBERGOV'SUMBER Baruun Urt

Arvaiheer SUKHBASSUKHBAATARUKHBAATARAR Altai Bayankhongor GOV'ALTAIGOV'AGOV'ALTAIAI Dundgov'

DUNDGOV'DUNDGOV' ÖVÖRKHANGAIÖVÖRKÖVÖRKHANGAIHANGAI Sainshand

BAYANKHONGORBAYANANKHONGORKHONGOR 44º DORNOGOV'DORNOGOV' 44º

MONGOLIA Dalanzadgad SUSTAINABLE LIVELIHOODS PROJECT DONOR SUPPORTED PROJECTS IN ÖMNÖGOV'ÖMNÖGOV' AGRICULTURE AND RURAL DEVELOPMENT

Core Aimags for SLP Phase I

IFAD Rural Poverty Alleviation Programme area AIMAG (PROVINCE) CAPITALS TACIS Rural Development Programme area NATIONAL CAPITAL ADB Agriculture Sector Development Project AIMAG (PROVINCE) BOUNDARIES FAO Pastoral Risk Management TCP Project area CHINA 0 100 200 300 INTERNATIONAL BOUNDARIES KILOMETERS

92º 96º 100º 104º 108º 112º 116º

APRIL 2002