Background to FINES Project
The Financial Inclusion and Entrepreneurship Scaling (FInES) Project is the project of International Development Association (IDA) of the World Bank that aims to increase access to financial services and promote the entrepreneurship and capabilities of micro, small, and medium enterprises (MSMEs) in Malawi, including addressing the negative economic effects of COVID-19.
The Government of Malawi obtained a loan amounting to US$86 million from the project through a Financing Agreement signed on 5 November 2020. The National Economic Empowerment Fund Limited expressed interest to participate in the line of credit under the project. An approval of K10 billion facility was obtained and following the approval, NEEF signed a subsidiary financing agreement (SFA) with the Reserve Bank of Malawi where the Project Implementation Unit (PIU) is housed.
Objectives OF FInES Project
- Increase access to financial services.
- Promote entrepreneurship and capabilities of Micro, Small and Medium Enterprises (MSMEs) in Malawi.
Qualification Criteria for Participating Financial Intermediaries
The facility requires participating financial institution (NEEF) to:
- Have an Environmental and Social Management System, which NEEF has developed and put in place.
- Have an established Monitoring and Evaluation system as the loans under the project requires effective pre- and post-disbursement monitoring.
- Have a Grievance Handling Mechanism.
- Establish appropriate Management Information System adequate to generate the required information for performance monitoring, loan tracking and for timely preparation and submission of prescribed monitoring and progress reports.
The borrowers must be MSMEs that meet the credit qualification requirements of NEEF or those that have been certified to have undergone business development training by NEEF
Capital expenditure and working capital loans to MSMEs will be limited to a maximum of the equivalent of USD70,000 per entrepreneur.
All borrowers must be issued with an ID number, according to guidelines that are issued by the Lender (RBM) in order to monitor progress reports.
NEEF shall keep records of Sub-Loan Agreements financed with the proceeds under the Credit Facility Agreement including a copy of each Sub-Loan Agreement and all material documents relating to the Sub-project financed for the duration of the relevant Credit Facility Agreement.
NEEF shall keep MSME sub-loans funded under MSMELCF separate and distinct from the rest of the credit portfolios. The portfolio will be reported to RBM on monthly basis to support the monitoring and evaluation framework of the project.
NEEF shall establish appropriate MIS adequate to generate the required information for performance monitoring, loan tracking and for timely preparation and submission of prescribed monitoring and progress reports.
The Environmental and Social Management
The overall purpose of Environmental and Social Management is to understand and manage risks that arise from environmental and social concerns. The focus is on managing risks and not on avoiding risks and it is intended for encouraging responsible financing practices and not for reducing or restricting financing. However, if there are business activities that are inherently irresponsible and managing these risks are not feasible, NEEF should avoid financing those activities.
NEEF also recognizes the importance of addressing both causes and the consequences of climate change for projects it finances. In this context NEEF will take appropriate initiative to support such projects with no or low carbon emission, climate change mitigation projects and other climate resilient projects. The specific purposes are to:
- Examine the environmental and social issues and concerns associated with potential business activities proposed for financing or being financed; and
- Identify, evaluate and manage the environmental and social risks and the associated financial implications arising from these issues and concerns.
Some of the sources of environmental risks are air emissions, inefficient use of energy, excessive use of water, un-controlled generation and disposal of wastes, illegal discharge of untreated hazardous substances, land contamination, sound pollution etc. Some of the sources of social risks include unhealthy and unsafe working conditions, inadequate measures for community health, safety and security, exploitation of indigenous people and cultural heritage, violation of human rights etc.
Application of Environmental and Social Management System
The environmental and social management system (ESMS) shall be applicable when assessing environmental and social (E&S) risks on all loans granted by NEEF. As much as the Environment Management Act (2017) provides a list of projects requiring and not requiring an Environmental and Social Impact Assessment (ESIA), the ESMS procedure shall apply to all projects regardless of whether or not mentioned in this law and its associated regulations.
Internal Communication and Training
Lending officer (LO) appraising a loan application whether the borrower is Corporate or SME shall understand the E&S Risks Identification and Assessment Procedure, which provides a flow chart of procedures to be followed when identifying, assessing and monitoring environmental & social risks aspects while integrating in credit approval process. Loan officer shall then complete E&S impact assessment checklist. The Procedure is self- explanatory which can serve as training material to all lending officers. Annual trainings for the entire Bank including specific training to all lending officers on E&S issues are periodically arranged by NEEF.
Environmental and Social Policy Statement
NEEF is committed to promote environmentally sound and sustainable development in the full range of its credit products. NEEF believes that environmental and social sustainability is a fundamental aspect of achieving outcomes consistent with its Credit Policy and recognizes that projects that foster environmental and social sustainability rank among the highest priorities of its activities. In view of this, NEEF shall only finance projects and businesses that manage their social and environmental impacts in a responsible manner based on the Malawian Environment Management Act of 2017 and also in line with the World Banks Environmental and Social Policy. NEEF will also apply international best practices, particularly IFC Performance Standards and other International treaties and conventions which have been ratified by the country will as well be complied with during assessment and management of Environmental and Social Risks.
Environmental and Social Categorization
Category A (High risk) activities: are those businesses/activities with potential significant adverse environmental or social risks and/or impacts that are diverse, irreversible, or unprecedented.
Category B (Medium risk activities): are those businesses/activities with potential limited adverse environmental or social risks and/or impacts that are few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures.
Category C (Low risk) activities: are those businesses/activities with minimal or no adverse environmental or social risks and/or impacts.
From social aspects point of view, NEEF shall observe the following for all businesses it finances:
- Provide equal opportunity to all social or gender groups in terms of employment and business relations;
- Have social acceptance from the surrounding community;
- Observe labor standards and working conditions including occupational health and safety;
- Abstain from financing businesses that use child and forced labour;
- Observe and eliminate negative impact of business on cultural heritage and involuntary resettlement;
- Abstain from financing projects and businesses that are in the Exclusion List as per section 2.5 below.
From environment aspects point of view, NEEF shall observe the following for all businesses it finances:
- Ensure that businesses financed observe environmental safety standards and regulatory requirements in line with country laws and international best practices;
- Observe and eliminate negative impact of business on Biodiversity Conservation and Natural Resources;
- Observe and eliminate negative impact of business on cultural heritage objects, sites and structures (e.g. Artefacts, archaeological sites, graves, and other sacred areas);
- Abstain from financing projects and businesses that are in the Exclusion List as per section 2.5 below.
List of Businesses Excluded from Accessing Loans
Exclusion List outlines various businesses and purposes which cannot qualify for Credit facilities in accordance with NEEF credit policy and requirement of international treaties and standards. Once an application is received, and the proposed project falls in the category of prohibited transactions, the application should be summarily rejected.
- Production or trade in any product or activity deemed illegal under Malawian laws or regulations or international conventions and agreements.
- Production or trade in weapons or ammunitions.
- Gambling, casinos and equivalent enterprises.
- Production or trade in alcoholic beverages (excluding beer and wine).
- Activities targeting tobacco manufacturing, processing, or specialist tobacco distribution, and activities facilitating the use of tobacco.
- Trade in wildlife or wildlife products regulated under Convention on International Trade in Endangered Species (CITES).
- Production or trade in radioactive materials. This does not apply to the purchase of medical equipment, quality control (measurement) equipment and any equipment where NEEF considers the radioactive source to be trivial and/or adequately shielded.
- Production or trade in or use of unbounded asbestos fibres.
- Any activities involving significant degradation or conversion of natural and/or critical habitats and/or any activities in legally protected areas.
- Activities damaging to national monuments and other cultural heritage.
- Unsustainable fishing practices such as drift net fishing in the marine environment using nets in excess of 2.5 km in length, electric shocks, or explosive materials.
- Production or trade in wood or other forestry products other than from sustainably managed forests.
- Production or trade in pharmaceuticals, pesticides/herbicides, ozone depleting substances, polychlorinated biphenyls (PCBs) subject to international phase outs or bans.
- Production or activities involving harmful or exploitative forms of forced labour or hazardous child work.
- Production, trade, storage, or transport of significant volumes of hazardous chemicals, or commercial scale usage of hazardous chemicals (gasoline, kerosene, other petroleum products, textile dyes etc.).
- Production or activities that have adverse impacts, including relocation, on the lands, natural resources, or critical cultural heritage subject to traditional ownership or under customary use by historically underserved traditional local communities.
- Activities involving land acquisition and/or restrictions on land use resulting in involuntary resettlement or economic displacement.
- Military or police equipment or infrastructures, and equipment or infrastructure which result in limiting people’s individual rights and freedom (i.e. prisons, detention centres of any form) or in violation of human rights.
- Activities involving live animals for experimental and scientific purposes.
- Loans to finance projects which have no Environmental and Social Impact Assessment (ESIA) while they are legally supposed to have a mandatory ESIA;
Responsibility for implementing this Environmental and Social Management System has been assigned to the Risk and Compliance Department which is found in the overall organization chart of NEEF. The Risk and Compliance Department is responsible for ensuring that all environmental, social and related risks are identified, evaluated and managed. The Risk and Compliance Department is headed by Risk Manager and supported by staffs specializing in key functions of environmental and social risk management. The management of E&S risks will not only be the role of the Risk and Compliance Department but will involve the whole governance structure. The governance practices, processes and responsibilities by which Environmental and Social Risk are managed and controlled in NEEF are shown in Table 1.
Table 1: Governance structure and Roles for Implementation of ESMS
Function / Committee
Role and Responsibility
Board of Directors
Oversight and overall direction of the business
Managing the core business of the institution
Management Risk and Compliance Committee
Holistically managing all risks within the institution through Enterprise Risk Management
Managing the risk of the entire credit portfolio
Asset and Liabilities Committee (ALCO)
Overseeing management of institution’s assets and liabilities
To provide independent assurance that institution’s risk management, governance and internal controls processes are operating effectively
Environmental and Social Risks Identification and Assessment
The objective of E &S risk identification and assessment procedures section is to provide a step-by-step guidance on screening, assessment, decision, control and monitoring of E&S risks with respect to transactions financed by NEEF.
The Risk Manager shall be responsible for final determination of the project E&S categorization based on categorization done in the E&S risk assessment form or appraisal filled by institution officers during site visit or desktop review. Where a need arises, E&S analyst from NEEF shall -review or re-visit the project site accompanied by the respective officer processing the loan. Final E&S categorization of the project will mainly base on facts collected from the submitted loan application documents and observation made during the site visit.
Flow chart for E&S Risk Assessment and Monitoring Procedure
The following is a flow of activities during project appraisal and loan categorization process which includes responsible personnel/business unit and activities involved:
Environmental and Social Risks Monitoring and Review
The Risk and Compliance shall ensure that all projects financed by NEEF are kept in constant monitoring throughout the loan tenure. The main objective is to ensure that projects are implemented and operated in compliance with prevailing regulatory requirements and other international best practice. Projects shall be monitored through all stages of construction, operation and decommissioning. The monitoring shall aim at enhancing positive impacts and eliminate or minimize negative impacts of the projects as outlined during the process of Environmental and Social Impact Assessment and included in the Environmental and Social Management Plans.
Monitoring will ensure that loan covenants set in facility agreements are adhered and any failure is earlier recognized hence NEEF may agree with the client on remedial measures to be taken by the client to achieve desired level of compliance. In case the client fails to comply with the agreed remedial measures, NEEF may take such action and/or exercise such remedies contained in the loan facility agreements that deemed appropriate. In case of any grievances related to E&S, the Lending Officer shall contact the SF unit for necessary course of action. Other project affected communities and stakeholders will report grievance as per procedure stipulated in customer complaints registers available at all NEEF branches and website. Furthermore, complaints can be raised at all grievance uptake locations as stipulated in the Grievance Redress Mechanism.
Monitoring process/activities will involve:
- Periodic site visits by the environmental and social risk analysts. During site visit a form named ‘Post-loan Disbursement E&S Risk Monitoring checklist’ shall be used while focusing on implementation of EMP/ESMP section as analyzed in the EIA report.
- For all high risks E&S projects and medium risks that need close follow up, conducting site visit and review the ‘E&S Risk Assessment Form’ to confirm/re-categorize the project proposal received from business unit.
- Review and ensure compliance with grievance mechanism during site visit.
- Maintain a database of approved loans from an E&S perspective.
- Periodic preparation of reports to the management detailing environmental and social risk status of various projects.
- Annual preparation of E&S compliance reports including mandatory Annual Environmental Performance reports.
Grievance Redress Mechanism (GRM)
NEEF operates in an open environment and has an open door policy that enhances support, friendship and professional collaboration. NEEF is committed to adhering to standards and procedures of accountability and transparency in all its business operations including lending as set out in its governance policies. NEEF will continue addressing the environmental impact of its business activities, directly or indirectly with those doing business with NEEF.
Purpose of the GRM
Grievance Redress Mechanism (GRM) aims at providing guidelines on managing and responding to various project related complaints as received from project affected individual, organization or community. The procedure will apply during all main stages of project cycle, initiation, construction, operation and closure. NEEF will require its clients to have in place a grievance mechanism to be able to receive and assist resolve project-affected parties concerns and grievances arising from the project. The grievance mechanism should be appropriate for anticipated project risks and impacts. However, the interested and affected parties can resort to channel their project related grievance directly to NEEF as per the procedures outlined in section 6.5 of this Procedure.
Objectives of the GRM
The following are major objectives of Grievance Redress Mechanism
- Ensure better safeguards mechanisms for implementation of projects.
- Resolve environmental and social grievances in the Project areas in a systematic and timely manner to safeguard interests of NEEF and community as a whole.
- Build up a relationship of trust amongst NEEF, project staff, affected parties and other project stakeholders.
- Ensure transparency in dealings amongst stakeholders including affected parties through a proper communication system.
Scope of the GRM
The GRM applies to;
- All project related complaints in connection with projects financed by the Financial Inclusion and Entrepreneurship Scaling (FInES) Project.
- The GRM will be applied to FInES funded projects regardless of the proportion of participation in the total loan agreement.
Procedures for channeling the project related grievances
- Receiving: Any project affected part with reasonable belief that a project being funded as per details in section 6.4 may result or is potential to social, health or environmental risk will raise a concern and report the same for a necessary remedial action. To enable thorough evaluation and investigation process, complainant should provide sufficient information so that timely solution for the complaint is obtained.