Financial Inclusion and Cluster Development (FINCLUDE)

1 1 Refer to page v for clarification regarding the name of the country. Document Date: 25-Apr 2018 Project No. 2000001804 Report No. 4781-SZ East and Southern Africa Division programme Management Department Kingdom of swaziland 1 Financial Inclusion and Cluster Development (FINCLUDE) Final project design report Main report and appendices Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report i Contents Important information v Currency equivalents vi Weights and measures vi Abbreviations and acronyms vii Map of the project area ix Executive Summary x Logical Framework xvi I.

2 Strategic context and rationale 1 Country and rural Development context 1 A. Rationale 5 Project description 8 Project area and target group 8 A. Development objective and impact indicators 15 B. Outcomes/Components 16 C. Lessons learned and adherence to IFAD policies 41 Project implementation 45 Approach 45 A. Organizational framework 47 B. Institutional capacity 50 C. External coordination and partnerships 52 D. Mobilization and Targeting 52 E. Planning, M&E, learning and knowledge management 53 F. Financial management, procurement and governance 57 G. Supervision 58 H. Risk identification and mitigation 58 Project costs, financing, benefits and sustainability 60 Project costs 60 A.

3 Project financing 60 B. Summary benefits and economic analysis 60 C. Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report ii List of Figures Figure 1: FINCLUDE Summary xxi Figure 2: FINCLUDE's nexus of opportunity 6 Figure 3: FINCLUDE's socio-economic target group 9 Figure 4: Inclusiveness and affordable minimum investment pathways for commodities 10 Figure 5: Mapping of potential candidate Cluster locations 18 Figure 6: Lessons learned: HVAP Participation rates of poor households by commodity 43 Figure 7: Rankings on Doing Business topics - swaziland (World Bank, 2017) 65 Figure 8.

4 Formal and Informal Financial Service Providers (and regulatory system) 68 Figure 9: Share of participants in the Financial Sector (Assets) Interest Rates (Prime and Discounted) 69 Figure 10: Government Funding Schemes 74 Figure 11: Access to Finance (2011-2014, rural/urban 2014), Usage of Financial Services per category 76 Figure 12: Private Sector Credit 77 Figure 13: Loans and Advances by Type of Industry 78 Figure 14: FINCLUDE's socio-economic target group 97 Figure 15: Criteria to identify "aspiring resource-constrained entrepreneurs" 105 Figure 16: Lessons learned: HVAP Participation rates of poor households by commodity 126 Figure 17: Full Beneficiary engagement schedule 143 Figure 18: SWOT for Rural Financial Sector in swaziland 147 Figure 19: Illustrative ' Financial 'matchmaking matrix' tool to be developed by the project 150 Figure 20: Financial Graduation Roadmap 150 Figure 21: Yearly loans disbursements guaranteed by the FIRM 157 Figure 22: PMU Team Structure 167 Figure 23: Implementation Structure of Component 2 169 Figure 24: Agro-ecological zones in swaziland 274 List of Tables Table 1.

5 Inclusiveness and affordable minimum investment pathways for commodities 9 Table 2: Scheduling of outreach and beneficiary, group and Cluster mobilization 15 Table 3: Initial commodities status, entry points and opportunities 19 Table 4: Loan supply constraints and solutions 32 Table 5: Lesson learned: evidence on HVAP s highly effective Inclusion of poor and marginalized households 43 Table 6: Risks and mitigation 58 Table 7: Project costs and financing by component 60 Table 8: Doing Business , 2017 ranking (World Bank) 64 Table 9: Differentiated intervention strategies by type of youth and economic opportunities 98 Table 10: Scheduling of outreach and beneficiary, group and Cluster mobilization 101 Table 11: Focus Group Discussions confirm that youth would engage in agriculture AGRICULTURE CAN BE SMART AND PROFITABLE.

6 102 Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report iii Table 12: Youth perspective on main challenges preventing their engagement in Agriculture (farm and non-farm enterprises) 103 Table 13: Women s perspectives on challenges and opportunities 103 Table 14: Migrant households and strategies to leverage their characteristics 112 Table 15: Lesson learned: evidence on HVAP s highly effective Inclusion of poor and marginalized households 127 Table 16: Cluster & group mobilization schedule for full beneficiaries 143 Table 17: Loan supply constraints and solutions 151 Table 18: Project Staffing 168 Table 19: Project costs and financing by component 245 Table 20: Outline of Good agricultural Practices along food commodities value chain 277 Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report iv Appendices Appendix 1: Country and rural context background 63 Appendix 2: Poverty, targeting and gender 81 Appendix 3: Country performance and lessons learned 121 Appendix 4: Detailed project description 132 Appendix 5.

7 Institutional aspects and implementation arrangements 163 Appendix 6: Planning, M&E and learning and knowledge management 217 Appendix 7: Financial management and disbursement arrangements 227 Appendix 8: Procurement 239 Appendix 9: Project cost and financing 245 Appendix 10: Economic and Financial Analysis 254 Appendix 11: Draft project implementation manual 269 Appendix 12: Compliance with IFAD policies 273 Appendix 13: Contents of the Project Life File 279 Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report v Important information Effective 19 April 2018, the Kingdom of swaziland has been renamed as the Kingdom of Eswatini.

8 At the time of finalising the design report, the full magnitude of the name change is still to be defined particularly as regards names of institutions and policies, and for consistency and ease of reading, no changes have currently been reflected in this report. Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report vi Currency equivalents Currency Unit = SZL - Emalangeni (plural) = Weights and measures 1 kilogram = 1000 g 1 000 kg = lb. 1 kilometre (km) = mile 1 metre = yards 1 square metre = square feet 1 acre = hectare 1 hectare = acres Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report vii Abbreviations and acronyms ACAT African Co-operative Action Trust Lilima AML/CFT Anti-Money Laundering / Combating the Financing of Terrorism B2B Business to business BDS Business Development services BSM Business Skills Mentor (FINCLUDE)

9 CAR Capital adequacy ratio CBS Central Bank of swaziland CBSCG Community based savings and credit groups CDD Cooperatives Development Department MoCIT CDP Capacity Development Provider CDO Cluster Development Officer (FINCLUDE) CDT Cluster Development Team (FINCLUDE) CDTL Cluster Development Team Leader (FINCLUDE) CEPD Capacity Enhancement and Policy Development Facility CFI Centre for Financial Inclusion CPRF Community Poverty Reduction Fund CM Cluster Mobilizer (FINCLUDE) CMS Cluster Mobilization Supervisor (FINCLUDE) CSARLP Climate-Smart Agriculture for Resilient Livelihood Project ECS Export Credit Scheme EU European Union FI Financial Institutions FINCORP The swaziland Development Finance Corporation FIRM Financial Instrument for Risk Management FNB First National Bank FSDIP Financial Sector Development Plan FSRA Financial Services and Regulatory Authority GALS Gender Action Learning System GDP Gross Domestic Product GEF Global Environment Facility GNI Gross National Income GoS Government of swaziland JA Junior Achievement swaziland KYC Know Your Customer LIA Lead Implementing Agency LUSIP

10 Lower Usuthu Sustainable Land Management Project MCM Multi-stakeholder Cluster meetings MFI Micro Finance Institution MFU/CFI Micro Finance Unit now Centre for Financial Inclusion MIS/M&E Information, Monitoring and Evaluation Officer MoA Ministry of Agriculture MoCIT Ministry of Commerce, Industry and Trade MoE Ministry of Education MoEPD Ministry of Economic Planning and Development MoF Ministry of Finance MoSCYA Ministry of Sports, Culture and Youth Affairs MoTAD Ministry of Tinkhundla Administration and Development MoTEA Ministry of Tourism and Environmental Affairs MPP Micro-projects programme Kingdom of swaziland Financial Inclusion and Cluster Development (FINCLUDE) Final project design report viii MPPCU Micro-projects programme Coordination Unit MSME Micro-, Small and Medium Enterprise MTN Mobile Telephone Network (provider)