Attachment J.8 Initial Environmental Examination.pdf

LAC/USAID COLOMBIA/ L EQUITABLE FIN ANCE ACTIVITY

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

REQUEST FOR CATEGORICAL

EXCLUSION

PROJECT/ACTIVITY DATA

Project/Activity Name: Equitable Finance Activity (EF) Geographic Location(s) (Country/Region): USAID/Colombia/LAC Amendment (Yes/No), if Yes indicate # (1, 2...): No Implementation Start/End Dates (FY or M/D/Y): FY 2022 -FY2027 If Amended, specify New End Date: N/A Solicitation/Contract/Award Number: TBD Implementing Partner(s): TBD Bureau Tracking ID: LAC-IEE-22-01 Tracking ID of Related RCE/IEE (if any): NA Tracking ID of Other, Related Analyses: NA

ORGANIZATIONAL/ADMINISTRATIVE DATA

Implementing Operating Unit(s):

(e.g. Mission or Bureau or Office)

COLOMBIA/Rural Economic Development Office

Other Affected Operating Unit(s): N/A Lead BEO Bureau: LAC Funding Operating Unit(s):

(e.g. Mission or Bureau or Office)

USAID/Colombia/RED

Funding Account(s) (if available): PS 3.2; HA 3 Original Funding Amount: $24.000.000 If Amended, specify funding amount: N/A If Amended, specify new funding total: N/A Prepared by: German Sanz Date Prepared: 09/16/2021

ENVIRONMENTAL COMPLIANCE REVIEW DATA

Analysis Type: X Request for Categorical Exclusion Deferral

Environmental Determination(s): X Categorical Exclusion Deferred

Categorical Exclusion Expiration Date (if different from implementation end date):

FY 2027

Additional Analyses/Reporting Required: N/A Climate Risks Identified (#): Low __16____ Moderate __0____ High _0___ Climate Risks Addressed (#): Low __16___ Moderate __0____ High _0___

LAC/USAID COLOMBIA/ EQUITABLE F INANCE ACTIVITY

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

THRESHOLD DETERMINATION AND SUMMARY OF FINDINGS

PROJECT/ACTIVITY SUMMARY

The United States Agency for International Development in Colombia (USAID/Colombia) is seeking to implement a five-year Equitable Finance Activity (EF). The purpose of the EF activity is to improve the supply and demand of formal financial services in rural, underserved and conflict regions, and mobilize long-term capital for USAID/Colombia’s programming as outlined in the Country Development Cooperation Strategy.

The activities designed under this project will be market-led and focus on meeting the expectations of end markets, to ensure sustainability and increased profitability for rural producers and businesses with special attention to underserved groups of the population.

Priority will be given to the areas included in the Development Plans with Territorial Approach (Spanish Acronym: PDETs) that include PDET municipalities that USAID/Colombia is targeting under the CDCS.

USAID will support a financial system operated under market conditions that focuses on those that are the most disadvantaged and facilitate the mobilization and allocation of funds for productive investments in agriculture and enterprises through viable and sustainable financial intermediaries (FIs). Emphasis will be placed on building the capacity of the supply side to respond to households and businesses of the underserved population, with products that address their needs.

On the demand side, EF will support demand-driven business development services (BDS) to help households and enterprises meet the requirements of the financial intermediaries to enable them to access their services. This may include technical assistance and training to develop business plans, f inancial data, improve management performance, leads to access new or expanding markets and support to overcome other types of barriers. EF will forge alliances with stakeholders and facilitate capacity building through technical assistance and training, performance grants and guarantees.

The activity will have a strong environmental focus and will introduce sustainable finance concepts. For instance, finance can play an important role in facilitating investment in environmentally friendly projects like low carbon transition and circular economy. The activity will encourage financial sector actors to invest in environment protection priorities like climate change adaptation, the promotion of environmental markets, and the development of eco-friendly businesses.

The EF activity has three primary objectives with a supporting special objective (SO) that include:

1: Increased financial capacity in target communities.

2. Increased provision of financial services in target communities.

3. Improved ecosystem for the financial inclusion of the underserved populations

4. Special Objective: Increased mobilization of long-term financial capital in USAID’s priority sectors.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

The EF activity directly aligns with USAID/Colombia’s Country Development Cooperation Strategy (CDCS) 2020-2025, under Development Objective Three - Promote equitable and environmentally sustainable economic growth.

The activity will promote local ownership and leveraging local resources and expertise. This activity will contribute to several key issues for USAID including youth, gender and women’s empowerment, local actors, and private sector engagement. The activity will facilitate financial inclusion and financial access for underserved communities. Communities defined as underserved include: youth, migrants, women, Afro-Colombians, indigenous peoples, LGBT communities, and rural producers and MSMEs. The activity will collaborate with other USAID/Colombia activities that consider financial service access an integral part of their implementation.

ENVIRONMENTAL DETERMINATIONS

Per USAID Environmental Procedures, certain classes of actions may qualify for a Categorical Exclusion, pursuant to 22 CFR Section 216.2(c)(l) and (2), for which an Initial Environmental Examination, or an Environmental Assessment is not required. The activities described qualify for a categorical exclusion per 22 CFR 216 as follows:

1. Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.);

2. Section 216.2(c)(2)(iii) Analyses, studies, academic or research workshops and meetings;

The Mission Environmental Officer (MEO) and the Contracting Officer's Representative -COR/ Agreement Officer's Representative AOR will oversee the implementation of appropriate environmental guidelines. Reports on these matters will be submitted by the Mission to LAC/BEO in Washington periodically.

The following table summarizes the environmental determinations applicable to the specific projects/activities:

TABLE 1: ENVIRONMENTAL DETERMINATIONS

Projects/Activities Categorical Exclusion Citation (if applicable) Deferral Objective 1: Increased financial capacity in target communities.

IR 1.1 Increased f inancial capacity among targeted individuals: Provide technical assistance to the government up-date/develop a National Finance Inclusion Strategy.

Support the GOC’s and private sector ef forts to implement and expand f inancial education programs at various levels. Provide technical assistance to design, test, and rollout a f inancial literacy program for members of savings and credit cooperatives, production cooperatives and NGOs. Facilitate underserved

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, academic or research workshops and

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

populations’ understanding about the benef its of actively participating in cashless and digital payments ecosystems and enhance their digital literacy.

IR 1.2 Increased f inancial capacity among MSMEs: Incentivize the creation and strengthening of business development services providers that bridge the management and requirement gaps between SMMEs and f inancial intermediaries for the underserved population-owned businesses. Facilitate the creation and strengthening of community associations and cooperatives that provide technical assistance and build the business management capacity for MSMEs and entrepreneurs. Promote the creation of a collaborative economic network of financial intermediaries and business guilds to strengthen peer-to-peer learning, results and lessons learned. Support formalization strategy/actions to register informal MSMEs.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, Objective 2: Increased provision of financial services in target communities.

IR 2.1: Increased capacity to provide services among financial service providers: Provide technical assistance to financial services providers to develop inclusive financial instruments for underserved population access. Support the design of value-chain financing methodologies, especially for non-traditional agricultural activities and businesses. Provide technical assistance to develop a blended f inancial system or fund to facilitate f inancing for high-risk ventures with the potential to generate social benef its. Enhance financial institutions’ skills, strategies and communications toward market segments that include underserved populations.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, IR 2.2: Expanded presence of financial service providers in target communities: Establish an incentive grant facility supporting EF activities through financial intermediaries and other private and public sector implementers. Implement incentive grants to cost share the opening and provision of new, reliable, and

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018 innovative financial points of contacts, like brick-and-mortar branches, mobile branches, cash agents, and mobile cash agents. Create gender-inclusive f inancial service distribution channels.

Create linkages between financial service providers and producers’ associations so that these associations can act as financial service access points through their f ield representatives. Implementing a shared-branching system for savings and loan cooperatives. Technical assistance to improve the efficiency of f inancial intermediaries’ operation so they may service the PDETs.

IR 2.3: Increased provision of digital services by financial providers:

Incentivize new digital solutions and inclusive digital finance products, like savings, loans, insurances, and f inancial management tools, through challenge/pay for performance grants.

Work with FinTech and financial service providers to incorporate human-centered design practices in how products are designed and marketed, taking into consideration behavior and rational economic decision making of underserved populations. Work with the financial institutions to support training for bank agents in digital services. Improve f inancial service providers’ readiness to manage and mitigate cyber security risks that could lead to harm for consumers, MSMEs, and the financial sector. Provide technical assistance to support the expansion of the digital network in the underserved areas by lowering costs, improving transparency, and expanding the scale of the activity.IR 2.3: Increased provision of digital services by f inancial providers.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, Objective 3: An improved ecosystem for the financial inclusion of underserved populations.

IR 3.1: Improved collection and use of f inancial consumer data: Identify and engage those stakeholders that can contribute to developing an ecosystem for f inancial inclusion through digital f inancial services. Create financial observatories for specific underserved population segments. Coordinate with

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

Banca de Las Oportunidades and other GOC agencies to update their f inancial inclusion framework, data collection system and measure impact of new policies. Gather information about specific underserved population segments’ economic behaviors and digital services needs through financial diaries. Increase availability of public data, made available via industry initiatives, civil society, regulators, or donor partners, on underserved populations’ financial behaviors, aspirations, and circumstances.

meetings;

IR 3.2: Enhanced regulatory f ramework for financial inclusion:

Provide technical support to the Financial Superintendence of Banks to monitor and assess the impact of the new Fintech and f inancial initiatives and help design/adjust the regulatory f ramework for these activities if they are approved and viable. Work with f inancial regulators to enhance rules, systems, and processes for financial consumer protection, like enhanced convenience and speed of complaints portals.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, Special Objective: Increased mobilization of long-term financial capital for USAID’s priority sectors.

: Develop alternative finance instruments, like equity investment, syndicated loans, blended finance facilities and investment capital funds supported by DFC guarantees. Build the capability of institutional investors, such as pension funds, investment funds, insurance companies, that have long-term resources so that they may evaluate the risk and benefits of investing in productive activities directly, with or through other financial intermediaries. Provide technical assistance to restructure FINAGOs policies and operational procedure to provide rediscount funds to a network of financial intermediaries under market conditions.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, CLIMATE RISK MANAGEMENT

The project is not expected to generate any significant greenhouse gas emissions. The activity will focus on capacity building and knowledge transfer activities to improve accountability and transparency systems and processes. As the activity is focused primarily on technical assistance

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

and capacity building, it will not significantly contribute to greenhouse gas emissions in the country. Moreover, ongoing monitoring will ensure that implementation of project activities does not increase greenhouse emissions.

BEO SPECIFIED CONDITIONS OF APPROVAL

Safety measures shall be taken to prevent transmission of COVID-19 during project implementation. Specifically, the implementing partner (IP) will ensure that the following requirements are met:

Ensure compliance with applicable partner country requirements and technical guidelines to prevent COVID-19 transmission over the course of the activities. This includes ensuring staff safety, safety of community members, and adequate management of waste. As appropriate, train staff and beneficiaries on social distancing, personal protective equipment (PPE) use, and disinfection. IP may follow WHO and/or CDC guidance as appropriate implementation.

IMPLEMENTATION

In accordance with 22CFR216 and Agency policy, the conditions and requirements of this document become mandatory upon approval. This includes the relevant limitations, conditions and requirements in this document as stated in Section 3 of this RCE and any BEO Specified Conditions of Approval.

This activity will be implemented by a contractor, possibly comprising a consortium of actors, and will be awarded through a full and open competition procurement process. The Equitable Finance Activity will be implemented through a contract and USAID/Colombia will designate a Contracting Officer’s Representative (COR).

Jennifer Tikka Digitally signed by Jennifer Tikka Date: 2021.10.04 16:16:15 -05'00'

Maria Santana Digitally signed by Maria Santana Date: 2021.10.01 10:07:57 -05'00'

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

1.0 PROJECT AND ACTIVITY DESCRIPTION

1.1 PURPOSE AND SCOPE OF RCE

This document establishes that all proposed tasks under the Equitable Finance Activity belong to classes of actions eligible for Categorical Exclusions as set out in Agency regulations (22CFR 216.2(c)) and that there are no foreseeable significant direct or indirect impacts that would preclude them from receiving a Categorical Exclusion. Upon approval of this document, the Categorical Exclusions are affirmed for the project/activity. This analysis also documents the results of the project/activity level Climate Risk Management process in accordance with USAID policy (specifically, ADS 201 mandatory reference 201mal). This RCE is a critical element of a mandatory environmental review and compliance process meant to achieve environmentally sound activity design and implementation. This new standalone RCE document has been prepared to cover ongoing activities under this project.

This Initial Environmental Examination for the Equitable Finance Activity is prepared in accordance with USAID Environmental Procedures 216, ADS Chapter 204 Environmental Procedures and MO# 2011-02 Environmental Procedures, under the Development Objective Three - Promote equitable and environmentally sustainable economic growth- contained in USAID/Colombia’s 2020-2025 CDCS.

1.2 PROJECT OVERVIEW

The purpose of the EF activity is to improve the supply and demand of formal financial services in rural, underserved and conflict regions, and mobilize long-term capital for USAID/Colombia’s programming as outlined in the Country Development Cooperation Strategy.

The activities designed under this project will be market-led and focus on meeting the expectations of end markets, to ensure sustainability and increased profitability for rural producers and businesses with special attention to underserved groups of the population.

Priority will be given to the areas included in the Development Plans with Territorial Approach (Spanish Acronym: PDETs) that include PDET municipalities that the USAID/Colombia is targeting under the CDCS.

USAID will support a financial system operated under market conditions that focuses on those that are the most disadvantaged and facilitate the mobilization and allocation of funds for productive investments in agriculture and enterprises through viable and sustainable financial intermediaries (FIs). Emphasis will be placed on building the capacity of the supply side to respond to households and businesses of the underserved population, with products that address their needs.

On the demand side, EF will support demand-driven business development services (BDS) to help households and enterprises meet the requirements of the financial intermediaries to enable them to access their services. This may include technical assistance and training to develop business plans, f inancial data, improve management performance, leads to access new or expanding markets and support to overcome other types of barriers. EF will forge alliances with stakeholders and facilitate capacity building through technical assistance and training, performance grants and guarantees.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

1.3 PROJECT DESCRIPTION

Development Hypothesis

IF f inancial capacity, access to financial services, and financial inclusion ecosystems are improved for target communities, and more long-term private capital is mobilized towards USAID development objectives, THEN underserved populations and businesses will be able to make informed financial decisions thereby increasing investment and licit economic opportunities in conflict-affected regions.

People and businesses need to have access to affordable financial products that meet their needs to expand and improve their livelihood and business opportunities. A balanced and well-developed financial sector strategy needs to have long-term financing to support its key sectors (SMMEs, agriculture, housing, clean energy, infrastructure, etc.) for an inclusive economic growth strategy.

Objective 1: Increased financial capacity in target communities.

Financial capacity is the combination of skills, attitude, knowledge, and self-efficacy needed to manage financial resources and make financial decisions. Improved financial capability will enable individuals and businesses to confidently: make financial decisions; engage with financial services; and address the misconceptions, disincentives, and consumer behaviors that discourage formal financial service use.

Intermediate Result 1.1. Increased financial capacity among targeted individuals.

Colombia has a financial system that adequately serves most of the urban areas but does not provide sufficient f inancial services to rural and underserved areas. Colombia continues to have a development gap between the urban and rural areas, formal and informal businesses, men and women, youth, elderly, migrants, and other disadvantaged groups. Underserved populations often have a negative perception of f inancial services providers due to their lack of contact with financial intermediaries.

Many people lack understanding of how the financial sector works, and they prefer to solve their f inancial needs through informal financial services, like family and friends, savings clubs, pawn shops and money lenders (loan sharks), that are more costly and present risks to personal safety. Cash continues to be the preferred method of payment in Colombia1. Approximately 88% of adults continue to make their periodic payments (rent, transportation, phone cards,) in cash. Fifty-five percent of adults believe that it is safer to use cash than credit cards. Fifty-seven percent believe that paying in person is more reliable than paying through the internet, and 93% believe that it is safer to save in informal groups than in banks.

Under this IR, the activity will improve citizens’ understanding of how to manage their f inances, the benefits of f inancial inclusion, and how the financial sector works in Colombia. Financial education efforts will improve underserved populations’ understanding of, and interest in, the benefits of using formal financial services.

1 USAID f inanced study: Jaime Arteaga & Asociado, Inclusión Financiera en Colombia, August 2021.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

Intermediate Result 1.2: Increase financial capacity among MSMEs.

Visiting a bank for a loan is a diff icult proposition for many SMMEs. Numerous businesses are informal and do not have accounting systems in place and are unable to clearly express their ideas and develop a business plan. Many SMMEs lack adequate or sufficient collateral, do not have formal credit history, have deficient management skills, and do not clearly understand the formal financial system procedures and requirements. On the supply side, the credit officers making decisions do not have adequate knowledge of the clients and their business activities, the transaction costs are prohibitively high and sometimes products do not match the SMMEs and producers’ needs.

The activities under this IR will enhance business owners and entrepreneurs’ capacity to develop and present bankable business plans to financial services providers. This IR will improve business owners’ entrepreneurial success to make informed financial decisions and improve access to formal financial services, with adequate coaching, technical assistance, and training from a business development service partner.

The EF will work with business development service providers to help SMMEs strengthen their ability to attract future private sector investment through improved business planning, financial management and reporting, marketing, technology transfer, and regulatory compliance. BDS providers will help identify market inefficiencies throughout the supply chain helping SMMEs improve their f inancial and operational performance. Grant funds may be used to partially off-set the cost to the SMMEs, through direct transfer or payment vouchers. Technical assistance may also be made available to BDS suppliers to build their capacity to deliver quality, tailored services, coupled with co-investment via performance-based grants/sub-contracts to incentivize results. EF may support the development of a network of professionals for BDS and extension service and promote linkages with chambers of commerce/producers and financial intermediaries.

Objective 2: Increased provision of financial services in target communities.

With today’s technology and alternative financing options and methodologies, it is no longer an aspirational goal to provide financial services to individuals and enterprises who normally don’t have access to the formal financial sector. Financial intermediaries are capable of expanding their geographic coverage and customer base well beyond the traditional banking services, through physical branches, mobile offices, and digital services with savings, credit, payments, and insurance products, creating a ripple effect that transforms the lives of excluded households in rural and underserved areas, while benefiting the financial intermediary.

Intermediate Results 2.1 Increased capacity to provide services among financial service providers.

Access to financial services is critical for economic growth and poverty reduction. Some of the financial institutions that have traditionally served urban businesses do not have the appropriate lending methodologies and financial instruments needed to serve rural households and agri-business value chains. Many microfinance providers lack the knowledge and technical capacity to evaluate risk of long-term financial instruments or agricultural value chain lending.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

To address the limited availability of f inancial services faced by the underserved population, IR

2.1 will strengthen financial institutions’ capacities to provide financial services to underserved groups through technical assistance. Technical assistance may be used to help the financial intermediaries adjust or develop new products, support market penetration studies and strategies, and establish linkages with BDS providers.

The Contractor will follow a demand driven approach, that considers not only credit, but includes, savings, insurance, payment system, remittance, and digital services, as required by the underserved community. Technical assistance will be restricted primarily to sustainable intermediaries.

Intermediate Results 2.2: Expanded presence of financial service providers in target communities

Under this IR, the activity will reduce the disincentives and transaction costs associated with providing financial services to underserved populations. Financial institutions must invest considerable resources in personnel, infrastructure, and communication to service rural and underserved communities. Through this IR, the activity will increase the availability of f inancial points of contact by expanding the physical presence of traditional channels, like cash agents, and promoting alternative financial services, like cooperative branch sharing and digital f inancial service methods that have the potential of lowering costs, increasing security and transparency to serve the rural areas at a sustainable scale.

To facilitate speedier branch expansion in unbanked rural centers, EF will use and incentive fund that will co-finance activities for outreach. The Contractor will preferably use performance-based grants to hold financial intermediaries accountable for results such as serving a certain number of clients, disaggregated by sex and vulnerable group if possible. Technical assistance may be offered for banking realignment assisting the intermediary to move to nontraditional businesses with specialty financing and payment processing in the PDETs. Assisting the bank in optimizing their service channels with cost-effective combinations to reach new customers.

The Contractor will promote innovation through two-way exchange visits. A major factor for PFIs adopting new solutions is seeing how they work elsewhere and what lessons have been learned. The Contractor will facilitate study tours and exchange visits to successful programs.

Intermediate Results 2.3: Increased provision of digital services by financial providers.

This IR will facilitate financial service provision in underserved communities and economic sectors. This IR aligns with USAID/Colombia’s focus on digital transformation and implementing the Digital Ecosystem Country Assessment Report (DECA) recommendations. Under this IR, the Contractor will work with FinTechs, financial services providers, and Colombian financial regulators to support continued digital f inance provision innovation.

Access to affordable financial services is required for scale and market penetration. Digital f inancial services have the potential to drastically reduce costs, increase transparency, and provide up-to-date data to make real time sensitive decisions in the approval or denial process.

Digital f inancial services offer the opportunity to tailor f inancial products to the terms and conditions required by the target population. According to WWW.Statistica.Com, mobile service penetration in Colombia for 2019 was 134.2% or 1.34 mobile phones per inhabitant while 61.5%

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

of all Colombians had access to the internet and are users. Fixed internet penetration however is low with only 15.8% of the household having internet.

In Colombia it is necessary to extend the digital infrastructure to rural dispersed areas to resolve the digital divide gap. At the financial regulatory level there are costly and time consuming know-your-customer requirements that need to be flexible and documentation requirements need to be reduced for small size accounts and limited purposes. The agent banker networks of local entrepreneurs that accept deposits, withdrawals, and open accounts on behalf of the financial institutions need to be strengthened and expanded. Data collection for decision making needs to be improved and available for different products and markets. Digital transactions may be used to help establish credit reference histories that will facilitate access to other transactions in purchasing agricultural inputs and business assets. New products like different types of insurance (animal, crop, farm and equipment property, life, etc.) and important information that add value like weather, market prices could easily be bundled in digital transactions. It is the responsibility of all parties to be fully transparent, letting clients know the cost, terms, and conditions of the products, and not to push for products that they don’t need or to lend more than what clients can pay.

Objective 3: An improved ecosystem for the financial inclusion of underserved populations.

This objective will facilitate access to, and supply of, f inancial services for underserved populations. It will do this by increasing the availability of information about underserved populations’ f inancial service use and needs, and by improving regulatory reforms related to financial inclusion.

Intermediate Results 3.1: Improved collection and use of financial consumer data

Policy and decision makers recognize the importance of having accurate data and information for evidence-based decisions in designing activities, approving projects, and formulating policies. Under this IR, the activity will increase the availability of information about the barriers and disincentives that limit underserved populations’ f inancial inclusion. Lack of information reduces policy makers’ ability to make informed decisions on how to better serve the needs of the target population and integrate them into the economic mainstream. Lack of information prevents financial and non-financial actors from designing, adapting, or marketing their products to respond to underserved populations’ economic needs, behaviors, and preferences. Increased access to information will enable private and public entities to target underserved populations as new clients, and to design human centered financial products.

Intermediate Results 3.2: Enhanced regulatory framework for financial inclusion

Strengthening Colombia’s existing financial regulatory framework will increase customer’s trust in, and use of, the financial system. Under this IR, the activity will assist the GOC to make financial regulatory framework reforms required to enhance consumer’s service access and

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

rights protections. These reforms will reduce the barriers and disincentives that prevent underserved populations’ financial inclusion.

Due to the velocity and fast-paced changes brought by technology and growth of the digital economy, the Financial Superintendence of Colombia has created a regulatory sandbox (La Arenera) as a testing ground for new Fintech models that are not protected under current regulations. The regulatory sandbox provides an opportunity to test, pilot, implement and evaluate the impact of new financial products that use the latest technologies, while protecting the consumer. The Contractor is expected to work closely with the Financial Superintendence of Colombia to help assess the value added of these new ventures.

Sandboxes can bring many innovations and benefits to the market, including more financial options, lower transaction costs, innovative use of an existing technology and improved knowledge-sharing between regulators and innovators as well as regulatory approval acceleration.

Special Objective: Increased mobilization of long-term financial capital in USAID’s priority sector.

Mobilizing private sector resources for finance and investment is essential to fund project with long-term maturities in different sectors to close the financing gaps. Infrastructure projects, agricultural investments, housing, irrigations systems, and clean energy are just a few examples that require long-term financing. This special objective is different from the previous objectives because it will target the financial sector, including medium and large companies, and will leverage resources towards CDCS objectives. This special objective will mobilize long-term capital needed to fund USAID priorities like digital innovation, rural development, alternative development, and environmental conservation. Achieving this special objective requires strengthening long-term finance instruments and incentivizing mechanisms that mobilize long-term financial capital resources. The activity will collaborate with other US government entities, like the DFC, to structure financial deals, provide the financial technical assistance, and incentivize private sector investment in prioritized geographic regions and economic sectors.

This activity may also collaborate with GOC Development Banks like FINAGRO, BANCOLDEX, and FINDETER.

The activity will have strong environmental considerations and will introduce sustainable finance concepts. For instance, finance can play an important role in facilitating investment in environmentally friendly projects like low carbon transition and circular economy. The activity will encourage financial sector actors to invest in environment protection priorities like climate change adaptation, the promotion of environmental markets, and the development of eco-friendly businesses.

TABLE 2: DEFINED OR ILLUSTRATIVE ACTIVITIES AND SUB-ACTIVITIES

Objective 1: Increased financial capacity in target communities.

IR 1.1 Increased f inancial capacity among targeted individuals: Provide technical assistance to the government to up-date/develop a National Finance Inclusion Strategy. Support the GOC’s and private sector efforts to implement and expand financial education programs at various levels. Provide technical assistance to design, test, and rollout a f inancial literacy program for members of savings and credit cooperatives, production cooperatives and NGOs. Facilitate underserved populations’ understanding about the benefits of actively participating in cashless and digital payments ecosystems and enhance their digital literacy.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

IR 1.2 Increased f inancial capacity among MSMEs: Incentivize the creation and strengthening of business development services providers that bridges the management and requirement gaps between SMMEs and financial intermediaries for the underserved population-owned businesses. Facilitate the creation and strengthening of community associations and cooperatives that provide technical assistance and build the business management capacity for MSMEs and entrepreneurs. Promote the creation of a collaborative economic network of financial intermediaries and business guilds to strengthen peer-to-peer learning, results and lessons learned. Support formalization strategy/actions to register informal MSMEs.

Objective 2: Increased provision of financial services in target communities.

IR 2.1: Increased capacity to provide services among financial service providers: Provide technical assistance to financial services providers to develop inclusive financial instruments for underserved population access. Support the design of value-chain financing methodologies, especially for non-traditional agricultural activities and businesses. Provide technical assistance to develop a blended f inancial system or fund to facilitate financing for high-risk ventures with the potential to generate social benef its. Enhance financial institutions’ skills, strategies and communications toward market segments that include underserved populations.

IR 2.2: Expanded presence of financial service providers in target communities: Establish an incentive grant facility supporting EF activities through financial intermediaries and other private and public sector implementers. Implement incentive grants to cost share the opening and provision of new, reliable, and innovative financial points of contacts, like brick-and-mortar branches, mobile branches, cash agents, and mobile cash agents. Create gender-inclusive financial service distribution channels.

Create linkages between financial service providers and producers’ associations so that these associations can act as financial service access points through their field representatives.

Implementing a shared-branching system for savings and loan cooperatives. Technical assistance to improve the efficiency of financial intermediaries’ operation so they may service the PDETs.

IR 2.3: Increased provision of digital services by financial providers: Incentivize new digital solutions and inclusive digital finance products, like savings, loans, insurances, and financial management tools, through challenge/pay for performance grants. Work with FinTech and financial service providers to incorporate human-centered design practices in how products are designed and marketed, taking into consideration behavior and rational economic decision making of underserved populations. Work with the f inancial institutions to support training for bank agents in digital services. Improve financial service providers’ readiness to manage and mitigate cyber security risks that could lead to harm for consumers, MSMEs, and the financial sector. Provide technical assistance to support the expansion of the digital network in the underserved areas by lowering costs, improving transparency, and expanding the scale of the activity.

Objective 3: An improved ecosystem for the financial inclusion of underserved populations.

IR 3.1: Improved collection and use of financial consumer data: Identify and engage those stakeholders that can contribute to developing an ecosystem for financial inclusion through digital financial services.

Create f inancial observatories for specific underserved population segments. Coordinate with Banca de Las Oportunidades and other GOC agencies to update their financial inclusion framework, data collection system and measure impact of new policies. Gather information about specific underserved population segments’ economic behaviors and digital services needs through financial diaries. Increase availability of public data, made available via industry initiatives, civil society, regulators, or donor partners, on underserved populations’ financial behaviors, aspirations, and circumstances.

IR 3.2: Enhanced regulatory framework for financial inclusion: Provide technical support to the Financial Superintendence of Banks to monitor and assess the impact of the new Fintech and financial initiatives and help design/adjust the regulatory framework for these activities if they are approved and viable. Work with financial regulators to enhance rules, systems, and processes for financial consumer protection, like enhanced convenience and speed of complaints portals.

Special Objective: Increased mobilization of long-term financial capital for USAID’s priority sectors. : Develop alternative finance instruments, like equity investment, syndicated loans, blended f inance facilities and investment capital funds supported by DFC guarantees. Build the capability of institutional investors, such as pension funds, investment funds, insurance companies, that have long-term resources so that they may evaluate the risk and benefits of investing in productive activities

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

directly, with or through other financial intermediaries. Provide technical assistance to restructure FINAGOs policies and operational procedure to provide rediscount funds to a network of financial intermediaries under market conditions.

2.0 ENVIRONMENTAL ANALYSIS

2.1 JUSTIFICATION FOR CATEGORICAL EXCLUSION

The activities under the Equitable Finance Activity are among the classes of actions listed in 22CFR216.2(c)(2) and have no foreseeable significant direct or indirect adverse effect on the environment. Therefore, under 22CFR216.2(c)(1), neither an IEE nor an EA will be required for these activities. Instead, a Categorical Exclusion is recommended for the activity described above in Section 1.3 as follows:

TABLE 3: RECOMMENDED DETERMINATION FOR CATEGORICAL EXCLUSION

Projects/Activities Categorical Exclusion Citation (if applicable)

Deferral

Objective 1: Increased financial capacity in target communities.

IR 1.1 Increased f inancial capacity among targeted individuals: Provide technical assistance to the government to up-date/develop a National Finance Inclusion Strategy. Support the GOC’s and private sector efforts to implement and expand f inancial education programs at various levels. Provide technical assistance to design, test, and rollout a f inancial literacy program for members of savings and credit cooperatives, production cooperatives and NGOs. Facilitate underserved populations’ understanding about the benefits of actively participating in cashless and digital payments ecosystems and enhance their digital literacy.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, academic or research workshops and meetings;

IR 1.2 Increased f inancial capacity among MSMEs: Incentivize the creation and strengthening of business development services providers that bridge the management and requirement gaps between SMMEs and financial intermediaries for the underserved population-owned businesses. Facilitate the creation and strengthening of community associations and cooperatives that provide technical assistance and build the business management capacity for MSMEs and entrepreneurs. Promote the creation of a collaborative economic network of financial intermediaries and business guilds to

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018 strengthen peer-to-peer learning, results and lessons learned. Support formalization strategy/actions to register informal MSMEs.

Objective 2: Increased provision of financial services in target communities.

IR 2.1: Increased capacity to provide services among financial service providers:

Provide technical assistance to financial services providers to develop inclusive f inancial instruments for underserved population access. Support the design of value-chain f inancing methodologies, especially for non-traditional agricultural activities and businesses. Provide technical assistance to develop a blended financial system or fund to facilitate financing for high-risk ventures with the potential to generate social benefits. Enhance financial institutions’ skills, strategies and communications toward market segments that include underserved populations.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, IR 2.2: Expanded presence of financial service providers in target communities:

Establish an incentive grant facility supporting EF activities through financial intermediaries and other private and public sector implementers. Implement incentive grants to cost share the opening and provision of new, reliable, and innovative f inancial points of contacts, like brick-and-mortar branches, mobile branches, cash agents, and mobile cash agents. Create gender-inclusive financial service distribution channels. Create linkages between f inancial service providers and producers’ associations so that these associations can act as financial service access points through their field representatives. Implementing a shared-branching system for savings and loan cooperatives. Technical assistance to improve the efficiency of financial intermediaries’ operation so they may service the PDETs.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, IR 2.3: Increased provision of digital services by financial providers: Incentivize new digital solutions and inclusive digital f inance products, like savings, loans, insurances, and financial management tools, through challenge/pay for performance grants. Work with FinTech and f inancial service providers to incorporate human-centered design practices in how products are designed and marketed, taking into consideration behavior and rational

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018 economic decision making of underserved populations. Work with the financial institutions to support training for bank agents in digital services. Improve financial service providers’ readiness to manage and mitigate cyber security risks that could lead to harm for consumers, MSMEs, and the f inancial sector. Provide technical assistance to support the expansion of the digital network in the underserved areas by lowering costs, improving transparency, and expanding the scale of the activity.

Objective 3: An improved ecosystem for the financial inclusion of underserved populations.

IR 3.1: Improved collection and use of f inancial consumer data: Identify and engage those stakeholders that can contribute to developing an ecosystem for f inancial inclusion through digital financial services. Create financial observatories for specific underserved population segments.

Coordinate with Banca de Las Oportunidades and other GOC agencies to update their financial inclusion framework, data collection system and measure impact of new policies. Gather information about specific underserved population segments’ economic behaviors and digital services needs through financial diaries. Increase availability of public data, made available via industry initiatives, civil society, regulators, or donor partners, on underserved populations’ financial behaviors, aspirations, and circumstances.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly af fecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, IR 3.2: Enhanced regulatory framework for f inancial inclusion: Provide technical support to the Financial Superintendence of Banks to monitor and assess the impact of the new Fintech and f inancial initiatives and help design/adjust the regulatory framework for these activities if they…