1. Proposal to National Multi-Donor Trust Fund: Sudan Micro-enterprise Development Government of National Unity: Central Bank of Sudan Ministry of Finance and National Economy Ministry of Investment August 2006

2. Strategic Objectives The strategic or development objective to promote broad-based, inclusive growth. This will be achieved through the sustainable growth of microenterprise in Sudan, including its profitability, asset growth, and formalization. The strategic or development objective to promote broad-based, inclusive growth. This will be achieved through the sustainable growth of microenterprise in Sudan, including its profitability, asset growth, and formalization. The project has four supporting objectives: The project has four supporting objectives: –To alleviate policy impediments to formalization; –To catalyze the provision of microfinance on a commercially sustainable basis, –To increase transfer of skills to the small scale and informal private sector through business development services and linkages to larger firms –To create a public-private partnership for low-income housing provision.

3. Component 1: Policy Reducing Barriers to Formalization Business is the main way out of poverty. Business is the main way out of poverty. But informal sector is not registered, faces harassment, lacks access to finance and competes for low-wage temporary work. Asset of the informal sector not eligible for secured financing. But informal sector is not registered, faces harassment, lacks access to finance and competes for low-wage temporary work. Asset of the informal sector not eligible for secured financing. Large and growing informal sector due to IDPs caught in a poverty trap. Large and growing informal sector due to IDPs caught in a poverty trap. Source: Voices of the Poor, D. Narayanan, World Bank 2002

4. Informality is partially a result of excessive procedures Corruption Procedures to Start a Business ALB DZA ARG ARM AUS AUT AZE BGD BLR BEL BOL BIH BWA BRA BGR BFA CMR CAN CHL CHN COL CRI CIV HRV CZE DNK DOM ECU EGY ETH FIN FRA GEO DEU GHA GRC GTM HND HKG HUN IND IDN IRN IRL ISR ITA JAM JPN JOR KAZ KEN KOR KGZ LVA LBN LTU MDG MWI MYS MLI MEX MDA MNG MAR MOZ NPL NLD NZL NIC NER NGA NOR PAK PAN PER PHL POL PRT ROM RUS SAU SEN SER SGP SVK SVN ZAF ESP LKA SWE CHE SYR TWA TZA THA TUN TUR UGA UKR ARE GBR USA URY UZB VEN VNM YEM ZMB ZWE Informal Employment Procedures to Start a Business ALB DZA ARG ARM AUS AUT AZE BGD BLR BEL BEN BOL BIH BWA BRA BGR BFA CMR CAN CHL CHN COL CRI CIV HRV CZE DNK DOM ECU EGY ETH FIN FRA GEO DEU GHA GRC GTM HND HKG HUN IND IDN IRN IRL ISR ITA JAM JPN JOR KAZ KEN KOR KGZ LVA LBN LTU MDG MWI MYS MLI MEX MDA MNG MAR MOZ NPL NLD NZL NIC NER NGA NOR PAK PAN PER PHL POL PRT ROM RUS SAU SEN SER SGP SVK SVN ZAF ESP LKA SWE CHE SYR TWA TZA THA TUN TURUGA UKR ARE GBR USA URY UZB VEN VNM YEM ZMB ZWE More Corruption A Larger Informal Sector Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level. Source: Doing Business 2004

5. Component 1 Will focus on removing Legal and Policy Impediments to Formalization Informal Economy Study Informal Economy Study –A need to better understand informal sector. What are the barriers to becoming formal? What are the sources of social capital and traditional legal systems? What economic activities undertaken? Which can become viable sources of growth? Sources of market information? Regulatory Streamlining Regulatory Streamlining –Building on FIAS and informal economy study, the component would finance legal and institutional reforms to reduce barriers to becoming formal. Asset registry Asset registry –The design of a database, community interface systems, community outreach in order to begin to register the business assets of economically-active poor to be security for loans.

6. Component 2: Microfinance Bank of Sudan has engineered recovery through FDI consolidation Bank of Sudan has engineered recovery through FDI consolidation –Despite increasing deposit and credit growth, smaller firms still find it difficult to obtain credit, particularly medium term –But microfinance relatively under performing. Few banks able to achieve 10% microfinance policy target. Microfinance vision now drafted – to be presented September 25 th 2006 Microfinance vision now drafted – to be presented September 25 th 2006

7. Component 2: Led by Central Bank of Sudan Will focus on establishment of sustainable microfinance Microfinance Policy Advisor Microfinance Policy Advisor –Establishment of Office of Microfinance Policy in Bank of Sudan Financial sector legislative specialist Financial sector legislative specialist –To support enactment of key financial sector laws and the publication of new microfinance licensing procedures. Microfinance units of existing commercial banks (Downscaling facility) Microfinance units of existing commercial banks (Downscaling facility) –Technical assistance packages to existing, sufficiently capitalized commercial banks to help develop microfinance units. Training for loan officers, organizational and strategic support, assistance in product development, information systems design. MFI Institution building program (greenfield) MFI Institution building program (greenfield) –Subordinated debt up to $800,000 for new microfinance institutions wishing to locate in Sudan, meeting criteria of Office of Microfinance Policy. After establishment and successful operation, debt convertible to equity.

8. Component 3 Led by Ministry of Investment will focus on SME Capacity and Linkages FDI has grown 223% since 2002. Banking, energy, retail, food sector FDI has grown 223% since 2002. Banking, energy, retail, food sector But insufficiently linked to local economy and small investors But insufficiently linked to local economy and small investors

9. Component 3 subcomponents Entrepreneurship awareness building Entrepreneurship awareness building –To allow rural and urban poor to become aware of microenterprise opportunities. SME investment capacity in Ministry of Investment SME investment capacity in Ministry of Investment –Domestic investment facilitation program. –Monitoring capacity to understand impact of investment on domestic sector. Administrative investment reforms Administrative investment reforms –Building on FIAS study, to build government capacity to serve domestic investors by reducing adminstrative barriers Linkage Development Fund Linkage Development Fund –Technical assistance facility to enable domestic firms to serve as suppliers to foreign invested firms (linkages) –Improve cost, quality and delivery terms with techical help of foreign companys purchasing department/supply chain manager.

10. Component 4 – to be undertaken in Phase 2 - Self-Help Housing Pilot The lack of assets of poor contributes to poverty trap The lack of assets of poor contributes to poverty trap Economically active poor to be targeted for emergence from poverty Economically active poor to be targeted for emergence from poverty Home ownership is one of the key ways to build assets, which may then be used as collateral for a business. Home ownership is one of the key ways to build assets, which may then be used as collateral for a business.

11. Component 4: Self-Help Housing Pilot A public-private partnership to build housing assets of the poor, based on Botswana, Sri Lanka, Aceh and Mexican self-help housing. A public-private partnership to build housing assets of the poor, based on Botswana, Sri Lanka, Aceh and Mexican self-help housing. Land plots contributed by state government Land plots contributed by state government Project provides for a competitive process to provide packages of self-help materials that are provided to qualified families. Qualifications include 20% down payment on cost of materials. Project provides for a competitive process to provide packages of self-help materials that are provided to qualified families. Qualifications include 20% down payment on cost of materials. Materials, design, and supervision. Materials, design, and supervision. Labor contributed by community, with small payments from family. Labor contributed by community, with small payments from family. Project may also provide a mortgage for 80% of cost of materials. Project may also provide a mortgage for 80% of cost of materials.

12. PSD Steering Committee CBOS, Ministry of Finance + all relevant Min/Agencies Bank of Sudan Dr. Sabir Hassan, Governor Procurement Monitoring & Evaluation Executing Agency Project Coordination Unit Policy Guidance Min Finance Barriers To Formalization CBOS Microfinance Ministry of Investment Capacity Building Project Mgmt Units Project management structure

13. MTDF Request ComponentPhase 1Phase 2Total 1Microenterprise Policy800,0002,400,0003,200,000 2Microfinance2,800,0002,950,0005,750,000 3Capacity Building2,000,0003,000,0005,000,000 4Self-Help Housing200,0001,400,0001,600,000 5Management, Monitoring and Evaluation 168,000400,000568,000 Total 5,968,00010,150,00016,118,000

14. Government Contribution ComponentPhase 1Phase 2Total 1Microenterprise Policy800,0002,400,0003,200,000 2Microfinance650,0002,650,0003,300,000 3Capacity Building2,060,0003,290,0005,150,000 4Self-Help Housing02,000,000 5Management, Monitoring and Evaluation 00600,000 Unallocated2,000,000300,000 Total 5,510,00010,640,00016,150,000