Input:
**The World Bank**
Formal Employment Creation Project (P171766) confidence and reducing domestic risk premia with appropriate monetary stance and effective fiscal policy would be key for sustaining recovery. Rigorous progress in advancing structural reforms such as deepening financial markets and completing overdue labor market reforms will help to mitigate vulnerabilities, and support growth in the medium term.

6. **Turkey is both a transit and reception country for migrants and refugees and, globally, the**
**country hosts the highest number of refugees.** [1] Because of the crisis in its southern border with Syria,
Turkey has been hosting an increasing number of refugees and foreigners seeking international protection. In addition to hosting more than 3.6 million Syrians, [2] who are under temporary protection, there are an estimated 400,000 asylum seekers and refugees from other nations. The country’s refugee response has been progressive and provides a model to other countries hosting refugees. However, the magnitude of the refugee and migrant influx continues to pose substantial development consequences for not only the displaced but also for the communities into which they settle, contributing to the expansion and overcrowding of settlements; increased demands for urban services (including water supply, sanitation, and solid waste services); additional pressure on infrastructure and the urban environment; conflicts over land; and increased competition for employment, housing, and social services. These stresses stretch the limited capacity of urban local governments, including municipalities and other service providers. Apart from the large cities such as Ankara, Istanbul and Izmir, many of the cities hosting a high concentration of Syrians are already located in the more vulnerable or disadvantaged provinces in Turkey, which exacerbates the development challenges.

7. **The Government of Turkey spent an estimated €31 billion to meet the needs of refugees and**
**hosting communities from the beginning of the Syrian crisis to 2017.** [3] This includes the provision of free
healthcare and education, as well as allowing legal access to the labor market. The international community has also provided over €4 billion since 2016, of which 95 percent is from the European Union (EU). [4] This includes the first tranche of the EU Facility for Refugees in Turkey (FRIT), which is a €3 billion fund launched in 2016, designed to support the Government hosting refugees; €600 million EU support outside FRIT; and over €400 million in bilateral support from EU countries. Other donors, such as United Nations agencies; international, national, and local civil society organizations; and international financial institutions (IFIs), have also been playing an important role in Turkey’s refugee response, implementing a diverse range of programs and projects, accounting for over €200 million. These efforts have been geared 1 Directorate General of Migration Management, 2019. This Project Appraisal Document uses the term refugee regardless of the country of origin, although Syrians are under temporary protection status, and non-Syrians under international protection law.
_[http://www.goc.gov.tr/icerik6/temporary-protection_915_1024_4748_icerik](http://www.goc.gov.tr/icerik6/temporary-protection_915_1024_4748_icerik)_ .
2 The terms ‘Syrians’ and ‘refugees’ are used in terms of sociological context and widespread daily use and are independent of the legal context in Turkey and Turkish Law. Turkey is a party to the 1951 Refugee Convention and 1967 Protocol. Turkey retains a geographic limitation to its ratification of the 1951 United Nations Convention on the Status of Refugees, which means that only those fleeing as a consequence of ‘events occurring in Europe’ can be given refugee status. Syrian nationals, as well as stateless persons and refugees from Syria, who came to Turkey due to events in Syria after April 28, 2011, are provided with temporary protection.
3 European Commission. 2018. _Technical Assistance to the EU Facility for Refugees in Turkey–Needs Assessment Report_ . Specific Contract No. 2017/393359/1, October 2018. _https://ec.europa.eu/neighbourhood-_ _[enlargement/sites/near/files/updated_needs_assessment.pdf](https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/updated_needs_assessment.pdf)_ .
4 European Commission. 2018. _Technical Assistance to the EU Facility for Refugees in Turkey–Needs Assessment Report_ . Specific Contract No. 2017/393359/1, October 2018. _https://ec.europa.eu/neighbourhood-_ _[enlargement/sites/near/files/updated_needs_assessment.pdf](https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/updated_needs_assessment.pdf)_ .

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Formal Employment Creation Project (P171766) primarily toward facilitating refugee access to the existing public services while strengthening the capacity and responsiveness of state institutions at the national and local levels.

**B. The Sectoral and Institutional Context**

8. **The recent worsening of economic and labor market conditions risks exacerbating key structural**
**challenges in the labor market.** Between 2005 and 2018, the economy managed to create 8.7 million jobs
owing to sustained growth and the introduction of a wide range of government programs and subsidies aimed at stimulating labor demand. More recently, however, the link between economic growth and job creation, especially formal job creation, has weakened, and the number of formal jobs created was insufficient to absorb all the new cohorts entering the labor market. As a result, the unemployment rate among youth ages 15–24, already one of the highest rates among the countries of the Organisation for Economic Co-operation and Development (OECD), has increased dramatically since the beginning of 2018, reaching almost 25.0 percent, while total unemployment has risen to 13.6 percent.

9. **Creating more and better formal jobs remains a priority because, as a result of the recent**
**economic downturn, the long-term declining trend in informality has slowed substantially.** Informality
decreased from 48 percent in 2005 to 33 percent in 2018, but this trend has been stagnating since 2015.
Informality gradually decreased until 2015, after which it began to increase slightly, reaching 36 percent in July 2019 (23.2 percent in nonagricultural sectors). [5] Informality reached 42 percent among women in 2018 and 50 percent among people with less than high-school education. Informal employment is more extensive in provinces that have been affected by the Syrian influx, especially the southeastern provinces, reflecting the absorption of Syrians able to work in informal jobs.

10. **The influx of Syrian refugees has added additional pressure on the labor market.** As previously noted, Turkey is the largest refugee-hosting country in the world, with 3.6 million Syrians. Turkey also hosts refugees from other countries (for example, Afghanistan and Iraq). The Syrian inflows to Turkey began in 2011, and the number of Syrian refugees in the country increased dramatically between 2013 and 2016. The surge represented a large labor supply shock to the economy. Many Syrians able to work, mostly low skilled, began taking up informal jobs that paid less than the minimum wage, thereby crowding out native formal workers.

11. **The high unemployment rates in refugee-hosting areas—up to 27 percent—signal the**
**seriousness of the challenges facing local and refugee job seekers.** Most provinces, hosting high numbers
of refugees, were already among the most disadvantaged in economic welfare and economic opportunities before the Syrian crisis, including a higher incidence of low-skilled workers, lower labor force participation rates, and high unemployment rates relative to the national average. To prevent further deterioration in labor markets, promoting permanent formal job creation is critical.

12. **The socioeconomic integration of refugees into the economy and improvements in livelihoods**
**in areas with high incidence of Syrians Under Temporary Protection (SuTP) are a major challenge.** The
few available data sources point to the substantial participation of working-age refugees in informal jobs.
Although most refugees are poor and vulnerable, many can work (around 430,000), but work informally (86 percent) for relatively low wages (TL 1,300 [US$220 equivalent] per month on average) (Livelihoods 5 The latest official monthly data refer to July 2019.

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Formal Employment Creation Project (P171766) Survey). [6] Only 2 percent of respondents to a recent survey reported that they were working and had work permits. About 65 percent of the beneficiaries of the Emergency Social Safety Net Program (ESSN), a temporary humanitarian program, report that their main source of income is short-term informal work. [7] This will become a more significant problem once the ESSN comes to an end.

13. **One of the most important contextual factors that limits formal job creation is the poor access**
**to financing among firms.** Credit service provision is less developed in many provinces where refugees
live and work. According to the World Bank Enterprise Survey, most respondents (76 percent) in the affected regions assert that access to finance deteriorated loan terms and conditions (interest rates, maturity, and collateral requirements). [8] Poor access to longer-term financing limits enterprises from investing, increasing production capacity, and providing sustainable employment opportunities. After high tax rates, access to finance is perceived as a top constraint on firms, particularly small and medium enterprises (SMEs), seeking to carry out and expand business in Turkey. [9] Limited access to finance can also have a negative impact on labor market outcomes, resulting in higher unemployment, higher workforce informality, and lower employment growth. Limited access to credit is also problematic among large enterprises (LEs) because these have the potential to create more jobs, especially among refugees, including higher-quality formal jobs. [10] 14. **Banks do not usually have adequately structured resources to offer medium- to long-term**
**maturities to most firms, mostly because of the short term of their liability base, thus leaving firms,**
**mostly SMEs, open to severe liquidity and interest rate risk.** **[11]** Lack of cash flow-based financing and high
collateral requirements constrain access to finance among SMEs. [12] After the global financial crisis and strong rebalancing in the economy after August 2018, major banks have significantly cut their exposure to SMEs and LEs. The banking system has limited access to long‐term financing. It is funded mostly by relatively stable customer deposits that mature in less than three months, while most of the lending is concentrated in loans for more than three months. The result is a negative liquidity gap, that is, more liquid liabilities than assets, or a liquidity mismatch risk, which peaks in the one- to five‐year maturity range. These imbalances are reflected in bank loan portfolios and the liability structure of enterprises. The bank‐dominated financial sector thus has only a limited ability to provide the maturity critical to support SMEs and LEs that need to make long‐term investments, expand production capacity, and increase employment. In order to address the problems mentioned above, the government introduced some measures to improve SMEs access to finance and their entrepreneurial capacities, that could result effective in the medium to long-term: 6 Turkish Red Crescent and World Food Programme. 2019. _Refugees in Turkey. Livelihoods Survey Findings._ Ankara: Turk Kizilay and World Food Programme.
7 World Bank and World Food Programme. 2019. _Vulnerability and Protection of Refugees in Turkey: Findings from the Rollout of_ _the Largest Humanitarian Cash Assistance Program in the World_ . Washington, DC: World Bank and World Food Programme.
8 Enterprise Surveys (database), International Finance Corporation and World Bank, Washington, DC, https://www.enterprisesurveys.org/.
9 Enterprise Surveys (database), International Finance Corporation and World Bank, Washington, DC., https://www.enterprisesurveys.org/.
10 Ayyagari, M., A. Demirgüç-Kunt, and V. Maksimovic. 2011. “Small vs. Young Firms Across the World: Contribution to Employment, Job Creation, and Growth.” Policy Research Working Paper 5631, World Bank, Washington, DC.
11 World Bank. 2014. _Turkey’s Transitions: Integration, Inclusion, Institutions_ . Report 90509-TR. Washington, DC: World Bank.
12 World Bank 2014 and 2018 data of the Survey on the Access to Finance of Enterprises (database), European Central Bank, Frankfurt, https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/index.en.html.

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Survey on the Access to Finance of Enterprises


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Formal Employment Creation Project (P171766)

- The establishment of an Emerging Companies Market at Borsa Istanbul where the shares of
the SMEs are exclusively traded. Since 2011 SMEs have access to the capital markets via this channel.

- Angel investment program has been launched in 2013 to encourage angel investment as a
new instrument for SMEs at their early stages.

- Promoting SME financing with the regulations that allows the use of movable assets as
collateral.

- The Portfolio Guarantee System has been included into the scope of Treasury-backed
guarantee mechanism enabling Credit Guarantee Fund to access more firms and to perform more efficiently.

- State-backed credit insurance has been launched in order to cover the losses of SMEs.

15. **SMEs make more use of internal funds to finance investments and working capital and face**
**higher collateral requirements than their peers in Eastern Europe and Central Asia.** [13] The share of SMEs
in total credit declined by 5 percentage points to slightly more than 20 percent in the aftermath of the global crisis in 2008–2009 and peaked at 28 percent in mid-2018 following the economic upturn and the highly utilized credit guarantee scheme. However, it declined to 23 percent, in 2019, despite several statefinanced policy stimulus programs. This fluctuation demonstrates how SMEs are among the first and most affected frontiers of the financing cycle.

16. **SMEs account for most firms in Turkey, but they have been facing difficulties in growing and**
**expanding.** Firm composition is highly skewed toward microenterprises and small firms. Firms with fewer
than 10 employees represent 84 percent of all firms that have employees; yet, they employ only 20 percent of the workforce. Firms with fewer than 50 employees represent 97 percent of all firms and employ 44 percent of the workforce, while, overall, SMEs (fewer than 250 employees) account for almost all firms (99.5 percent) and employ 66 percent of all formal sector workers. However, 84 percent of all new job creation between 2014 and 2016 was generated by large firms (more than 250 employees); firms with between 50 and 250 employees accounted for 20 percent of job creation, while firms with fewer than 50 employees experienced net employment loss (–4.5 percent). Meanwhile, SMEs are more highly exposed to rising mandatory labor costs, such as the increase in the national minimum wage, which grew by 33 percent in nominal terms between December 2015 and January 2016. Constrained by such costs, SMEs may resort to hiring workers informally or might exit completely from the registered formal sector and continue operations informally.

17. **Another major challenge affecting the capacity of firms to create jobs and expand is the capacity**
**to find skilled workers.** An inadequately educated labor force is perceived to be among the top five
constraints to doing business in Turkey. The analysis of data on more than 7 million job postings at the public employment agency (İŞKUR) between 2016 and 2018 and from İŞKUR’s Labor Market Needs Assessment Survey and the top nine online job search portals shows that the most critical skills sought by employers across provinces are behavioral, socioemotional, and software-related skills. [14] 13 Enterprise Surveys (database), International Finance Corporation and World Bank, Washington, DC, https://www.enterprisesurveys.org/.
14 https://media.İŞKUR.gov.tr/33412/istihdamda-3i-30-sayi-ek1-2019-yili-isgucu-piyasasi-arastirmasi-sonuclari.pdf Page 12 of 86

data on more than 7 million job postings


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**The World Bank**
Formal Employment Creation Project (P171766) 18. **The labor market in Turkey is still characterized by substantial gender gaps compared with OECD**
**countries.** The female labor force participation rate, despite a slight increase between 2014 and 2018,
remains less than half the rate among males (34 percent versus 73 percent). The gap is substantial at all ages. The participation rate among adult women ages 25–64 is 38 percent versus the OECD average of 64 percent. Since 2009, the gap between the female and the male unemployment rates has been widening steadily, and the unemployment rate reached 14 percent among women in 2018. Women also suffer from higher informality in the labor market, which reaches 42 percent of total female employment versus 29 percent in the case of male employment. Women are twice as likely as men to be unpaid family workers (representing 20 percent of total female employment versus 10 percent among men). There is a higher incidence of young women not in education, employment, or training, which reaches 33 percent of the female population ages 15–24, versus 15 percent among males.

19. **By supporting enterprises in gaining access to longer-term financing, through grants and loans**
**to boost their operational capacity, and on formal job creation that provides decent working conditions**
**in the case of grant recipients, the project will contribute to improving the conditions to increase formal**
**employment** **[15]** **opportunities and formalization of workers in selected provinces.** It also contributes to
the employability of the beneficiaries through formal on-the-job work experience and skill building. This will directly or indirectly contribute to strengthening the local economy by reducing unemployment and informality and increasing social cohesion.

20. **The proposed project is a part of the World Bank’s engagement in Turkey by focusing firm-led**
**job creation among the most vulnerable populations.** It targets communities negatively affected by
refugee-related risks associated with the Syrian conflict. It does so by supporting the Government of Turkey’s efforts to alleviate certain constraints to access to financing using grants and loans for firms most likely to create formal jobs largely for work-able, low-income, workers. The workers are those who would otherwise be eligible for noncontributory emergency social safety net (income or cash transfers) support in selected provinces with a high number of refugees. These workers are largely ineligible for other interventions supported by the Government of Turkey, the World Bank, or other development agencies. [16] 21. **The project is informed by the frameworks of the World Development Report (WDR) 2013, on**
**jobs, and the WDR 2011 on conflict, security, and development.** The WDR 2013, on jobs, calls for a threepronged approach to addressing job creation, including (a) ensuring macroeconomic fundamentals, (b)
examining labor policies, and, as needed, (c) designing targeted interventions to address structural or systemic exclusion among highly vulnerable populations. [17] Similarly, WDR Report 2011, on conflict, discusses productive employment as a key factor that helps accelerate the shift from fragility-associated welfare risks to greater resilience and social cohesion. [18] The proposed project also seeks to alleviate welfare- and social cohesion-related risks through greater inclusion of vulnerable groups in the formal sector.

15 The definition of formal employment used here is “workers registered in the social security system through their main job.” 16 These include ongoing lending operations focusing on strengthening financial sector conditions and access to finance in traditional banking; other proposed FRIT grant-financed interventions supporting active labor market policies, microenterprises, and agricultural cooperatives for low-skilled and high-skilled populations; and World Bank-financed technical assistance on macroeconomic reforms, labor institutions, employment subsidies, and social assistance policies.
17 World Bank. 2012. _World Development Report 2013: Jobs_ . Washington, DC: World Bank 18 World Bank. 2011. _World Development Report 2011: Conflict, Security, and Development_ . Washington, DC: World Bank.

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Formal Employment Creation Project (P171766)

**C. The Relevance to Higher-Level Objectives**

22. **The proposed project is a part of and aligned with the Turkish Government’s and development**
**partners’ broader response to the Syrian refugee crises.** The alignments of the proposed actions with key
national and multilateral strategies are as follows: (a) **11th Development Plan (2019–2023).** The project is aligned with the objectives of the development plan to combat informal employment, to enhance the participation of groups requiring special policies in labor force and employment and to encourage (particularly beginning from local level) the participation of women in all levels of economic, social, and cultural life and decision-making mechanisms.

(b) **New Economic Program.** The proposed action is aligned with the key objectives of the New Economic Program in tackling the structural problems of the labor market and combating informal employment.

(c) **Turkey’s Syrian Refugees Response Program.** The action will be part of the larger joint response of the Turkish Government, the European Commission (EC), and the World Bank to the Syrian refugee crisis. The proposed action directly responds to two of the four priority areas of the EC’s response on socioeconomic support: ‘ensuring and increasing formal employment and entrepreneurship’ and ‘improvement of the labor market cohesion’. Also, it is in line with the Government of Turkey’s current response seeking to facilitate integration of refugees into society and economy. The program will complement the Government efforts to create local employment opportunity, reduce regional disparities, and eventually improve social cohesion.

(d) **National ESSN Exit Strategy.** The strategy calls for the graduation of 180,000 SuTP into the labor market making them self-reliant. In this effort, the same number of Turkish citizens shall be supported, adding up to 360,000 beneficiaries. The proposed project takes up the strategy by providing formal employment to work-able Syrians and Turkish citizens alike.

(e) **World Bank Country Partnership Strategy.** The project will seamlessly build on former projects by the World Bank, such as the Inclusive Access to Finance Project (P163225) with the Development and Industrial Development Bank of Turkey (TKYB) and FRIT I-supported projects (Employment Support Project for Syrians Under Temporary Protection and Turkish Citizens [P161670]), Strengthening Economic Opportunities for Syrians under Temporary Protection and Turkish Citizens in Selected Localities Project [P165687], and Development of Businesses and Entrepreneurship for Syrians under Temporary Protection and Turkish Citizens Project [P168731]). The proposed action will build on the knowledge acquired through various employment-related operations in Turkey and elsewhere, especially those that relate to helping refugees integrate in labor markets.

(f) **Complementarity with other initiatives supported by EU. The proposed action is part of**
**the priority area of the EU FRIT on socioeconomic support for Turkish citizens and refugees**
**in enhancing livelihoods and access to employment.** It assumes the FRIT’s second tranche’s
greater emphasis on socioeconomic activities and includes lessons from the second needs Page 14 of 86


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**The World Bank**
Formal Employment Creation Project (P171766) assessment and internal assessments. This action will leverage ongoing work financed by the EU, which analyses the economy to identify the economic sectors and firms that have large job creation potential and wage growth (the _Kreditanstalt für Wiederaufbau_ [KfW], _Deutsche_ _Gesellschaft für Internationale Zusammenarbeit_, the European Bank for Reconstruction and Development [EBRD], and so on).

23. **The operation is well aligned with the World Bank-Country Partnership Framework (CPF) for**
**Turkey for FY2018–2021 (discussed by the Board on August 29, 2017, Report No. 11096-TR),** specifically
Focus Areas I (‘Growth’) and II (‘Inclusion’) of the CPF, with the main objectives of enhancing access to finance within underserved markets, improving competitiveness and employment in selected industries, and increasing labor force participation of women and vulnerable groups. To reach these objectives, the operation will support enterprises in gaining access to longer-term financing, improving capital structures of loan recipients, and creating formal jobs for grant recipients. The operation aims at enhancing the employability of beneficiary employees (both Turkish citizens and refugees) through formal work experience and training programs. The operation will support Focus Area II of the CPF by improving labor market cohesion, as well as social cohesion.

**II.** **PROJECT DESCRIPTION**

24. **The planned operation will support refugees and Turkish citizens in accessing formal**
**employment opportunities in creditworthy enterprises in provinces with a high incidence of Syrian**
**refugees.** It will offer beneficiary firms in project provinces [19] greater access to financial resources and
skills to enhance their capacity to expand business and, ultimately, increase formal employment and decent working conditions, [20] that is, social security and other legally mandated benefits.

25. **The total amount for the proposed interventions is €391.96 million (US$430.85 million**
**equivalent).** The project will be funded by a €316 million loan from the World Bank and a €75.96 million
grant from the EU under the FRIT Program constituting a special measure on health, protection, socioeconomic support, and municipal infrastructure. Financing from each source is parallel and thus the respective activities/investments are financed by either one or the other financing source. [21] Still, the project is conceived as a unique operation, and aims at leveraging the mutually beneficial complementarities between the grant and the loan components to achieve greater results in terms of formal job creation in refugees affected areas.

26. **The loan programs will be implemented by the TKYB with the support of participating financial**
**institutions (PFIs).** The program will take advantage of the TKYB’s extensive network and loan provision

19 Project provinces include Istanbul, Sanliurfa, Hatay, Gaziantep, Adana, Mersin, Bursa, Izmir, Kilis, Konya, Mardin, Ankara, Kahramanmaras, Kayseri, Kocaeli, Osmaniye, Diyarbakir, Malatya, Adiyaman, Batman, Manisa, Denizli, Tekirdag, and Sakarya.
20 The International Labour Organization’s decent work involves “opportunities for work that is productive and delivers a fair income, security in the workplace and social protection for families, better prospects for personal development and social integration, freedom for people to express their concerns, organize and participate in the decisions that affect their lives, and equality of opportunity and treatment for all women and men.” 21 The EU financing will be available after an Administrative Agreement is signed between the World Bank and EU, followed by a Grant Agreement signed between the World Bank and the recipient/implementing body.

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Formal Employment Creation Project (P171766)

**Figure 1. Theory of Change**

**E. Rationale for World Bank Involvement and the Role of Partners**

48. **The project will leverage the World Bank’s experience with line of credit interventions in Turkey**
**with a strong inclusion focus.** The project design builds on recent lines of credit operations supporting
Turkish exporters, SMEs, and energy efficiency investments, all rated Highly Satisfactory or Satisfactory by the World Bank Independent Evaluation Group. The TKYB has experience working with the World Bank and is willing to explore opportunities to expand formal job creation through its existing and future client base and draw lessons for future activities.

49. **Improved access to finance can lead to significant positive effects on employment growth**
**among private and formal firms in Turkey.** The empirical evidence shows that firms with greater access
to finance markets, are more likely to experience higher employment growth. Access to finance constraint has a significant negative effect on employment growth for small firms (5–49 employees) and large firms (250+ employees). The effect is stronger for the large firms (see annex 4). When considering specific forms of finance interventions, lines of credit targeted to SMEs show comparatively greater potential to spur employment growth. Out of 15 studies investigating the impact of lines of credit (see annex 5), 10 had a specific focus on job creation. All 10 studies reported that lines of credit had positive and significant effects on employment generation. For instance, a World Bank-financed onlending program targeted at SMEs resulted in the creation of 7,000 jobs and the preservation of 35,000 jobs among beneficiary firms in Turkey. Also, compared with nonbeneficiary firms, beneficiary firms created more jobs. Employment effects persisted after three years from disbursement. [25] 25 World Bank. 2016. _Second Turkey Access to Finance for Small and Medium Enterprises Project. Implementation Completion_ _Report Review_ ICRR 14918. Washington, DC: World Bank.

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Formal Employment Creation Project (P171766) projects. A midterm and end line citizen engagement survey will be conducted by the TKYB to seek feedback from beneficiary firms on their satisfaction with the project. The PIU will discuss the survey results with PFIs and the results will inform project implementation, as appropriate. The financial performance of the TKYB will be monitored through independent auditors’ reports and separate management letters confirming adherence to prudential norms. Monitoring of core intermediate result indicators at the PFI level will enable the TKYB and the World Bank team to take action in case of a significant deviation for a specific PFI, which may affect the progress toward the PDO. Though, it is not included in the Results Framework, the PIU will also report the statistics on formal employment creation in the loan beneficiary firms.

**C. Sustainability**

64. **The project is expected to facilitate greater intermediation by the financial sector in the**
**currently underserved market segments.** Although the World Bank loan amount is small relative to the
potential demand for such loans in project provinces, the multiplication effect will be achieved through the TKYB’s channeling of any subfinance repayments to other eligible firms both through PFIs and directly for the same purpose. More broadly, the World Banks’s financing support under the project will go handin-hand with strengthening the capacity of the TKYB and other PFIs to serve the specific needs of beneficiary firms.

65. **To avoid market distortions, the TKYB and PFIs will follow their respective pricing policy**
**according to market conditions.** The cost of onlending subsidiary financing through PFIs will include, at a
minimum, the cost of World Bank funds to the TKYB, plus an onlending margin reflecting the TKYB’s administrative costs, a credit risk margin (or risk markup) associated with the PFI, and fees to the Ministry of Treasury and Finance for the guarantee provision. Ultimate beneficiary costs will add, at a minimum, the PFI’s administrative costs and a credit risk margin (or risk markup) associated with the beneficiary enterprise. The only significant market advantage from the World Bank funds is in terms of maturity, facilitating the provision of long‐term finance to enterprises without taking on a significant maturity mismatch. TKYB with the support of the World Bank will also ensure that the grant allocation process is non-distortionary and transparent

**IV.** **PROJECT APPRAISAL SUMMARY**

**A. Technical, Economic, and Financial Analysis (if applicable)**

66. **Economic estimates on the impact of the project components on formal job creation in the short**
**and medium run show substantial employment effects across different types of firms.** Under the main
scenario related to the costs associated to workers’ wages, it is estimated that the project will generate approximately 9,000 new formal jobs through the grant.

67. **The parameters used to assess the potential job creation effects of the grant component are in**
**line with labor market characteristics and employment composition by type of firms in project**
**provinces.** Potential beneficiary firms are divided into three main groups depending on firm size, which is
a very strong predictor of job creation in Turkey: small firms (below 50 employees); medium firms (between 50 and 250 employees); and large firms: above 250 employees, which account for 30.4, 22.6, Page 25 of 86

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Input:
**The World Bank**
Formal Employment Creation Project (P171766) and 47 percent of total employment in project provinces, respectively. The expected employment growth assumed for large firms is in line with the trend observed between 2010 and 2016: this has been discounted by a penalty factor to account for the fact that grant beneficiary firms might not necessarily be top performing firms, given their financial constraints. The expected growth rate in employment for SMEs reflects the expected effect of the grant on job creation: in fact, SMEs employment yearly growth rate between 2010 and 2016 has been negative, but the findings from the economic literature (see annex 5) suggest that SMEs tend to benefit more than proportionally compared to other type of firms from the alleviation of financial constraints. Another working assumption is that the distribution of the grant across firm types should be consistent with the distribution of employment. Given these conditions, the expected number of jobs to be created for the ‘average’ firm in each group are estimated, and then the total number of potentially beneficiary firms in each group is obtained. In summary, the table shows that around 9,000 jobs are expected to be created under the grant component, of which over 4,500 are in SMEs, by reaching out to approximately 771 beneficiary firms in project provinces (table 2A, scenario 1).

**Table 2A. Parameters Choice for Estimating the Job Creation Effect of the Grant Component (Scenario 1)**

**Firm size** **Expected**

**average**
**beneficiary**

**firm size**

**Expected**
**jobs to be**
**created by**

**average**

**firm**

**Expected**
**employment**

**(%) increase**

**for average**

**firm**

**Expected**
**number of**
**beneficiary**

**firms**

**Expected**

**job**
**creation**

**(total)**

**Expected**
**Employment**

**%**
**composition**

**Total**
**grant**
**amount**
**(million**

**euro)**

**Expected**

**average**
**grant per**

**firm**
**(euro)**

[below 50) 30 4 13.3 453 1,812 20 14 31,000

[50-250) 150 14 9.3 204 2,856 32 22 108,000

[250+) 300 38 12.7 114 4,332 48 34 295,000 Total 771 9,000 100 70 90,000

**Table 2B. Parameters Choice for Estimating the Job Creation Effect of the Grant Component (Scenario 2)**

**Firm size** **Expected**

**average**
**beneficiary**

**firm size**

**Expected**
**jobs to be**
**created by**

**average**

**firm**

**Expected**
**employment**

**(%) increase**

**for average**

**firm**

**Expected**
**number of**
**beneficiary**

**firms**

**Expected**

**job**
**creation**

**(total)**

**Expected**
**Employment**

**%**
**composition**

**Total**
**grant**
**amount**
**(million**

**euro)**

**Expected**

**average**
**grant per**

**firm**
**(euro)**

[below 50) 30 2 6.7 969 1,938 22 19 19,600

[50-250) 150 10 6.7 367 3,667 41 22 60,000

[250+) 300 24 8.0 141 3,395 38 29 205,000 Total 1477 9,000 100 70 47,000 Page 26 of 86


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Formal Employment Creation Project (P171766)

**Table 5. Estimates of job creation among loan beneficiary firms**

**Loan beneficiary firm**
**expected average size**

**Expected yearly**

**employment**

**growth**

**Expected Jobs**
**created during**
**the project per**

**Expected**
**number of**
**beneficiary**

**Expected Jobs**
**created during**

**the project**

**firm** **firms** **(total)**

Direct lending 300 3.5% 44 60 2655 Lending through PFI 150 3.0% 19 40 753 All firms 100 3408

**firm**

**firms**

**Table 6. Estimates of total job creation among loan and grant beneficiary firms.**

Total Jobs created Loan beneficiary firms Grant beneficiary firms Total without "linkages" effects 3408 9000 12408 with "linkages" effects 3749 9900 13649

**Table 7. Cost effectiveness estimates for the overall project.**

Cost per job Loan beneficiary firms Grant beneficiary firms Total without "linkages" effects 44008 7778 17730 with "linkages" effects 40007 7071 16118 _Multiplier Effects_ 72. **The effects of the implementation of sub-loans and subgrants will be measured by the World**
**Bank both at the firm level and at the regional and sectoral level, including spillover effects.** Potential
spillovers of the program will be measured through the project-run firm survey (including also firms that are not direct beneficiaries) and by leveraging the richness of the Enterprise Information System (the database of all Turkish firms available at the Ministry of Industry and Technology), including information on the business networks of loan beneficiary firms, and the type and number of subsidiary firms.

73. **The selection of loan beneficiary firms will take into account potential links and spillover effects**
**in terms of job creation between loan beneficiary firms and grant beneficiary firms.** The project will aim
to strengthen the links between loan beneficiary firms and grant beneficiary firms and maximize the spillover effects that enhanced conditions for job creation for loan beneficiary firms can have on grant beneficiary firms. With this objective, the TKYB will take into account, among the criteria for the selection of loan beneficiary firms, the value chain generated by the business activities of loan applicants, the ecosystem in which they operate and their business network, and the number of their subsidiary or intermediary firms which potentially could be grant beneficiary firms. Further, successful grant beneficiary firms with high record of job creation, could “graduate” and potentially become loan beneficiary firms.

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Formal Employment Creation Project (P171766) and age verification procedures. The TKYB will also apply a corporate-level Human Resource Policy (dated April 2019), which is in line with national regulations and ESS2 requirements.

88. **In line with ESS9, the TKYB will apply relevant requirements of ESS2 to subprojects and SME and**
**LE loan and grant recipients.** Grants will be provided conditional on the commitment of firms to formally
employ Turkish citizens and refugees in project provinces and sustain the newly created jobs throughout the duration of the grant. The jobs will be formal and will providing decent working conditions consistent with ESS2 requirements, social security, and other legally mandated benefits. SMEs and LEs will adhere to the labor code provisions. These requirements will be included in the legal agreements between the TKYB/PFIs and loan and grant beneficiary firms. To verify formality and duration of employment, the TKYB will receive regular employment and wage records for beneficiary firms from SGK.

89. **The TKYB has prepared, disclosed, and consulted its Stakeholder Engagement Plan (SEP) where**
**direct stakeholders include potential SMEs and LEs, unemployed work-able Syrian refugees and Turkish**
**citizens in targeted provinces, and PFIs.** The SEP has also identified indirect stakeholders (project-affected
parties and other interested parties) including IŞKUR, SGK, local nongovernmental organizations/civil society organizations, community leaders, and local government representatives residing or working in the project areas.

90. **The TKYB will establish a good communications strategy to be implemented throughout the**
**lifetime of the project.** In disseminating project-related information to potential SME and LE beneficiaries,
the TKYB and PFIs will employ experienced loan officers to engage with the direct target group (potential beneficiary firms). In addition, both the TKYB and PFIs will hire individual consultants who will be able to use various engagement tools specified in the project’s SEP. According to ESS10, public consultation meetings will be required for both Turkish citizens and refugees to introduce project information and E&S documents, once the subprojects are known. To mitigate potential risks and address received grievances, the TKYB and PFIs will establish a project-specific grievance redress mechanism (GRM) to address inquiries or concerns in line with project SEP. The project-specific GRM will also benefit from the national-level GRM through Cumhurbaşkanlığı İletişim Merkezi (CIMER) and Yabancılar İletişim Merkezi (YİMER) as defined in the SEP.

**E. Citizen Engagement, Gender, and Climate Co-Benefits**

91. **Citizen engagement activities will be carried out to involve project beneficiaries in two-way**
**engagement processes.** The project will develop and adopt a set of participatory tools for engaging
beneficiaries, tailored to suit firms and employees of beneficiary firms. The project will obtain feedback from (a) loan beneficiary firms (SMEs and LEs) under the loan component, (b) grant beneficiary firms (SMEs and LEs) under the grant component, and (c) employees (refugees and Turkish citizens) of beneficiary firms under the grant component.

(a) The loan component of the project will adopt a set of tools to obtain feedback continuously through the project. Building on the TKYB survey of 600 firms conducted during preparation, beneficiary firms will be involved in the following sequence of activities: (i) **Participatory needs assessments and decision making over training needs and the**
**design of training programs.** The TKYB, in collaboration with PFIs, will conduct

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Formal Employment Creation Project (P171766) participatory needs assessments with loan beneficiary firms to establish their trainings needs at the application stage.

(ii) **Post-training assessments.** The TKYB will conduct a post-training assessment to measure the satisfaction and impact of the trainings, with the results being used by training providers to revise and improve the process in subsequent assessments.

(iii) **Satisfaction surveys.** The TKYB, in collaboration with PFIs, will conduct satisfaction surveys in the midterm and end term with the loan beneficiary firms regarding the subfinance received in terms of their needs. [30] (iv) **Biannual beneficiary workshops, roundtables, and focus group discussions** (targeting different beneficiaries: employers, civil society and end beneficiaries) will be held to discuss the survey results with a view to developing measures that improve the project design (such as the selection criteria of loans beneficiary firms, loan utilization, and choice of training activities). This activity will draw from the World Bank team’s recent experience in carrying out validation workshops in the context of the FRIT I Strengthening Economic Opportunities for Syrians under Temporary Protection and Turkish Citizens in Selected Localities Project (P165687). To ensure that the feedback of beneficiaries is effectively used, the project will establish a review committee tasked with consideration of the findings of each tool and its integration in subsequent activities.

(b) The grant component will engage with the target beneficiary firms, Turkish citizens, refugees and ESSN beneficiaries through the following activities: (i) **Consultations.** Meetings will be held in four project provinces during the calls for grant applications to provide an open platform for interested firms, and other stakeholders to raise questions/comments regarding the project design (for example, selection criteria for beneficiary firms, grant utilization, strictness of employment conditionalities, and impact on Turkish citizens and refugee communities).

(ii) **Participatory needs assessments, post-training assessments, and satisfaction surveys** will also be conducted by the TKYB as described above, and the TKYB will use the same review committee to ensure that the findings and feedback from grant beneficiaries are adopted in subsequent years.

(c) In addition, a GRM will be established and managed by the TKYB PIU as a channel for beneficiary firms and workers to register their complaints. The GRM, which will build on the lessons of the FRIT I Project, will be advertised in the TKYB’s website and will ensure that the beneficiaries receive a response within a stipulated time period.

(d) The project will measure whether the subfinance, training, and employment processes meet the needs of the beneficiaries. The results will be gender disaggregated, presented, and 30 The survey will not include satisfaction with the decisions of the TKYB and PFIs related to the size, terms, and conditions of the loan that need to be market based.

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Formal Employment Creation Project (P171766) discussed by the review committee to bring about improvement in the targeting and effectiveness of project activities.

92. **The project mainly addresses three specific gender gaps.** First, despite the rising levels of educational attainment among women in Turkey, high rates of low-skilled, informal, unpaid family workers prevail among women. The female labor force participation rate for people ages 15–64 is significantly lower than the OECD average in 2018 (64.6 percent for OECD; 38.3 percent for Turkey).
Second, the lack of skills is one of the main obstacles to low-skilled women’s participation in the labor market in Turkey. Evidence shows that training programs can be effective in boosting female employment and earnings. Job and business training programs can fill the skill gap for people who are out of the education system. Third, according to the gender analysis of the United Nations, only 15 percent of refugee women are engaged in income-generating jobs. [31] The same assessment indicated that only a small number of women (7 percent) have taken part in vocational training, and, when they do take part, the most popular areas of study are hairdressing (30 percent) and needlework (27 percent), which are closely related to traditional gender roles and provide limited opportunity for formal employment.

93. **The project proposes several actions to improve gender outcomes.** First, the project will encourage and prioritize both refugee and Turkish women to participate in the labor force. Second, the project will specifically encourage adequate women’s representation at the participatory activities implemented under the project components. Also, the project will ensure that women have equal opportunities in accessing trainings to increase their skills. These actions will be measured through the following indicators: (a) number of formal jobs created for women and (b) number of women-inclusive firms receiving grants.

94. **The potential environmental impacts of the project are anticipated to be predictable and**
**expected to be temporary and/or reversible, low in magnitude. and site specific.** However, there are no
restrictions on sectoral basis, except the exclusion list of the World Bank and TKYB, most of the potential subprojects are expected to be in manufacturing, motor vehicle repair and maintenance, food processing, and construction, which might be associated with the generation of hazardous wastes from the use, storage, or transportation of hazardous materials. Therefore, while the high and substantial risk subprojects will be screened out, given the scale of the overall project and the potential need to handle hazardous materials and address the risk of the generation of hazardous wastes, the proposed environmental risk rating for the project is determined as Substantial.

95. **Climate change is further exacerbating Turkey’s already observed vulnerabilities and**
**environmental risks.** While the country has no detailed climate change assessments that reflect
conditions at the municipal level, it faces the risk of climate-related impacts resulting from the interaction of climate-related hazards with the vulnerability and exposure of human and natural systems and their ability to adapt. The project intends to mitigate climate events by promoting national preparedness and capacity to avoid the adverse impacts of climate change identified in Turkey’s Climate Change Action Plan (2011–2023). Specifically, the project will: 31 United Nations Women and the Association for Solidarity with Asylum Seekers and Migrants. 2018. _Needs Assessment of Syrian_ _Women and Girls under Temporary Protection Status in Turkey_ . Ankara: UN Women.

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Formal Employment Creation Project (P171766) Some of this risk may be mitigated by the availability of spare capacity in the construction sector, that may allow construction companies to respond quickly.

99. **The technical design of the project is rated Substantial.** While the TKYB has implemented several projects funded by the World Bank in the past, based on a similar design, the complexities inherent in working in regions under a crisis context, the blended financing, and the monitoring and enforcement of conditionalities pose additional challenges. The new mandate of the TKYB (as defined in the amended establishment Law 7147, dated October 11, 2018) underlines the importance of providing support to reduce regional development differences and promote economic and social development in the regions affected by domestic and regional migration. The implementation of the proposed operation will be managed by the Loan Department of the TKYB, in close collaboration with other relevant TKYB departments. The TKYB has strong business relations with the potential financial intermediaries. The project relies on the TKYB’s existing organization structure, which is critical for its sustainability. To complement this structure, a governance body for the allocation of grants will be established. The monitoring and enforcement of the compliance with the conditionalities will rely on official records provided by SGK and a formal coordination agreement will be signed between the TKYB, SGK, and intermediaries. The World Bank team will closely monitor the compliance mechanisms to mitigate the risks and implement timely corrective action as needed.

100. **Institutional capacity for implementation and sustainability is rated Substantial.** While the institutional capacity risk is rated Moderate the risk to sustainability is rated Substantial. The TKYB has significant experience in managing similar interventions; however, the mixed approach and the context of the targeted areas require substantial technical, financial, managerial, safeguards, and fiduciary capacity to fully carry out its mandate under the project. Reaching SMEs for the grant component would present an additional challenge, given the TKYB’s limited presence in the target areas. The enforcement of the conditionality for the grant component and the delivery of the core training program requires significant efforts. The enforcement of the PIU with experts in these areas and employing additional fulltime human resources for the implementation and monitoring of E&S issues, including stakeholder engagement and GRM, should help mitigate this risk. Regarding sustainability, training programs for employees of beneficiary firms should help in their increased marketability and the participation on core training by management and employees should contribute to increase their productivity in the long term.

101. **Environmental and social risks are rated Substantial** . The structure of the project is based on providing loans and grants to SMEs and LEs for working capital and investment purposes through the TKYB and selected PFIs. While the project is expected to have positive outcomes on improving access to employment opportunities for refugees and Turkish citizens, there are contextual risks related to the inherent social risks associated with the potential competition for job opportunities among the Syrian and Turkish citizens. The project design included measures to improve social cohesion both through training activities and capacity-building activities for beneficiary firms, employees, and the TKYB staff under Component 3 in addition to the project’s SEP. Although there are no restrictions on sectoral basis, except Page 38 of 86


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Formal Employment Creation for Refugees and Turkish Citizens (P171766)

**VII.** **RESULTS FRAMEWORK AND MONITORING**

**Results Framework**

**COUNTRY: Turkey**
**Formal Employment Creation Project**

**Project Development Objectives(s)**

The project objective is to enhance the conditions for formal job creation by firms operating in provinces with high incidence of Syrians under Temporary Protection (SuTP), for the benefit of Turkish citizens and refugees.

**Project Development Objective Indicators**

**RESULT_FRAME_TBL_PDO**

**Indicator Name** **DLI** **Baseline** **Intermediate Targets** **End Target**

**1** **2** **3**

**To increase access to finance in loan beneficiary firms**

Ratio of the average maturity of beneficiary firms sub-financing under the project, over the average maturity of borrower's portfolio not financed under the project (Text)

1.00 >1 >1 >1 >1

**To increase formal job creation in grant beneficiary firms**

Number of formal jobs created by Grants (disaggregated by gender) (Number) Number of formal jobs created in SMEs (disaggregated by gender) (Number) 0.00 3,000.00 6,000.00 9,000.00 9,000.00 0.00 1,800.00 3,600.00 4,500.00 4,500.00 Page 41 of 86


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Formal Employment Creation Project (P171766)

**RESULT_FRAME_TBL_PDO**

**Indicator Name** **DLI** **Baseline** **Intermediate Targets** **End Target**

**1** **2** **3**

Number of formal jobs created 0.00 900.00 1,800.00 2,700.00 2,700.00 for women (Number)

**To enhance skills in beneficiary firms**

Increased management skills in
1.00 1.00 >1 >1 >1
loan beneficiary firms (Text) Increased employee skills in grant
1.00 1.00 >1 >1 >1
beneficiary firms (Text)

**PDO Table SPACE**

**Intermediate Results Indicators by Components**

**RESULT_FRAME_TBL_IO**

**Indicator Name** **DLI** **Baseline** **Intermediate Targets** **End Target**

**1** **2** **3**

**Loans targeting firms with high potential for job creation**

Capital Stock of loan beneficiary
1.00 >1 >1 >1 >1
firms (Text)

**Grants targeting firms conditional on job creation**

Number of firms receiving grants 0.00 300.00 600.00 770.00 770.00 (Number) Number of women-inclusive firms 0.00 100.00 200.00 255.00 255.00 receiving grants (Number)

**Strengthening capacity of beneficiary firms, TKYB, and PFIs**

Monitoring and Evaluation system No Yes developed (TKYB and SGK) (Yes/No) Training provided to loan officers 0.00 10.00 20.00 25.00 25.00 (in TKYB and PFIs) (Number) Page 42 of 86


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Formal Employment Creation Project (P171766)

**RESULT_FRAME_TBL_IO**

**Indicator Name** **DLI** **Baseline** **Intermediate Targets** **End Target**

**1** **2** **3**

Number of employers completing 0.00 0.00 60.00 90.00 120.00 training (Number) Number of employees completing 0.00 0.00 1,500.00 3,000.00 4,500.00 training (Number) Citizen engagement: Loan beneficiaries report that project sub-finance reflected their needs (Percentage) Citizen engagement: Grant beneficiaries report that project sub-finance reflected their needs (Percentage) Citizen engagement: Workers in grant beneficiary firms reporting that training and employment processes met their needs (disaggregated by gender) (Percentage)

**IO Table SPACE**

**UL Table SPACE**

0.00 70.00 75.00 80.00 80.00 0.00 70.00 75.00 80.00 80.00 0.00 75.00 80.00 85.00 85.00

**Monitoring & Evaluation Plan: PDO Indicators**

**Methodology for Data** **Responsibility for Data**
**Indicator Name** **Definition/Description** **Frequency** **Datasource**
**Collection** **Collection**

Ratio of the average maturity of Project beneficiary firms sub-financing under the Annual Firm surveys TKYB and PFIs reports project, over the average maturity of borrower's portfolio not financed under

**Methodology for Data**
**Indicator Name** **Definition/Description** **Frequency** **Datasource**
**Collection**

Annual Project reports Firm surveys TKYB and PFIs Page 43 of 86


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Formal Employment Creation Project (P171766) the project Number of formal jobs created by Grants Annual (disaggregated by gender) Number of formal jobs created in Annual SMEs (disaggregated by gender) Number of formal jobs created for women Increased management skills in loan Annual beneficiary firms Increased employee skills in grant Annual beneficiary firms

**ME PDO Table SPACE**

Progress reports Progress reports Progress reports Progress reports Declaration of firms verified by SGK Firm declaration verified by SGK Skills measurement surveys Skills measurement surveys

**Monitoring & Evaluation Plan: Intermediate Results Indicators**

**Methodology for Data**
**Indicator Name** **Definition/Description** **Frequency** **Datasource**
**Collection**

TKYB TKYB TKYB and PFIs TKYB

**Responsibility for Data**
**Collection**

TKYB and PFIs TKYB TKYB Page 44 of 86 Firm survey TKYB administrative data TKYB administrative data Progress reports Progress reports Progress reports Capital Stock of loan beneficiary firms Capital-output ratio will be calculated per firm (and cellbased) Annual Annual Number of firms receiving grants Number of women-inclusive firms Annual receiving grants


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Formal Employment Creation Project (P171766) potential suppliers will see the TKYB as a good customer to develop business in their respective field of expertise.

21. The PPSD confirmed that commercial procurement practices of small firms, group of people, or individuals in Turkey follow the general rule that they procure the least-cost goods, works, and services consistent with acceptable quality requirements. In the case of goods, the local practice is to prepare the technical specifications and solicit quotations from the local and/or international market. In the case of medium and large works, the technical specifications are usually prepared by consultant companies and bids are collected from qualified contractors. Minor works are generally tendered on a lump-sum basis by collecting bids from a number of local contractors. In the recent years, the purchasers commonly visit shopping sites in the Internet to find the optimum price for specific goods and seek availability of after sale services from the manufacturers. When equipment and machinery are needed for expansion of the existing facilities, the purchasers usually prefer proprietary goods from a single source for the sake of standardization and minimization of the operation and maintenance cost.

22. The Turkish commercial code provides a modern ‘constitution’ for private sector commercial activity and entrepreneurship, grounded in financial transparency and strengthened corporate governance, and regulates the reporting requirements for intergroup transactions among group companies. In this context, the communique on ‘minimum content for the annual activity report’ requires the group companies to report on the group transactions, which will eventually strengthen arms-length arrangements between them. The World Bank provided finance to various credit line operations in Turkey in which the end users were private sector firms or individuals. All such World Bank-financed credit line projects confirmed that the funds were used by the beneficiaries for the intended purposes in consideration with economy and efficiency. So, the procurement to be done by the beneficiaries under Component 2 of the project will be done in accordance with well-established commercial practices as stipulated in the relevant POM and confirmed by the TKYB that these practices are consistent with the World Bank’s Core Procurement Principles of value for money, economy, integrity, fit for purpose, efficiency, transparency, and fairness.

23. The PPSD proposed to hire the individual experts required for the TKYB PIU in accordance with the individual consultant selection procedures as specified in the Procurement Regulations. These include, but are not limited to, a procurement specialist, a training coordinator, an M&E expert, and a financial management specialist.

24. **Procurement Plan and procurement tracking.** The Procurement Regulations require the borrower to use the World Bank’s Systematic Tracking of Exchanges in Procurement (STEP), an online procurement tracking tool to prepare, clear, and update its Procurement Plans and conduct all procurement transactions. The TKYB will create the Procurement Plan through STEP before initiating any procurement activity. The PPSD and the underlying Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs. All the procurement-related complaints will be recorded in the STEP complaint module by the TKYB.

25. A list of procurements performed by the beneficiaries under Component 2 will be recorded in a format agreed by the World Bank and specified in the relevant POM and these records will be uploaded into STEP by the TKYB at least annually but not later than closing date of the project. The contracts agreed by the World Bank for financing and included in the approved procurement plan are listed in table 1.2.

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Formal Employment Creation Project (P171766) 26. **Advance procurement** _**.**_ Procurement Regulations Paragraphs 5.1 and 5.2 (Advance Contracting and Retroactive Financing) permits that the borrower may wish to proceed with the procurement process before signing of the Legal Agreement. In such cases, if the eventual contracts are to be eligible for World Bank financing the procurement procedures, including advertising, shall be consistent with Sections I, II, and III of the Procurement Regulations which cover the World Bank’s Core Procurement Principles of economy, efficiency, transparency, fairness, fit-for purpose, value for money, and integrity _._ With this understanding, the TKYB will initiate the selection of the PIU consultants immediately after project negotiations upon publication of the General Procurement Notice in the United Nations Development Business online.

27. **Procurement methods and standard procurement documents.** While comprehensive selection methods and use of the World Bank’s standard procurement documents will be applicable, due to the emergency response nature of the project, flexible, streamlined, and fit-for-purpose arrangements will also be used in the project procurements. Higher thresholds will be used for the simple selection procedures as specified in the approved Procurement plan. When approaching the national market, as agreed in the Procurement Plan, bidding documents agreed by the World Bank in Turkish language will be used. Determined thresholds and selection methods will be reviewed by the World Bank during the project supervisions and/or when the World Bank decides and will be updated as appropriate.

28. **Procurement risk assessment** _**.**_ The World Bank has conducted a procurement assessment for the project, with a focus on the TKYB in terms of (a) procurement regulatory framework and management capability, (b) integrity and oversight, (c) procurement process and market readiness, and (d) procurement complexity. While the Procurement Regulations will apply in the proposed project, the assessment concludes that (a) applicable procurement policies and the regulatory system are designed broadly to meet Core Procurement Principles of value for money, economy, efficiency, effectiveness, integrity, transparency and fairness, and accountability; (b) the TKYB has a clear system of accountability with clearly defined responsibilities and delegation of authority on who has control of procurement decisions; (c) there is a clear identified target market for all procurements; and (d) the TKYB effectively manages contracts to ensure delivery according to the contract conditions. The assessment was recorded in the Procurement Risk Assessment and Management System of the World Bank.

29. The TKYB will undertake the overall responsibility of the project implementation and coordination through its PIU that was established under the Private Sector Renewable Energy and Energy Efficiency Projects and continued to operate under the Geothermal Development Project. The procurement capacity assessment concluded that the TKYB has adequate resources and capacity for implementing the credit line operations of the project through its current PIU.

30. The TKYB PIU also developed experience in the selection of consultants in accordance with the World Bank’s procurement procedures under the Geothermal Development Project. However, some experienced staff separated from the PIU when the TKYB headquarters moved from Ankara to Istanbul in 2018. In addition, the TKYB does not have experience with the World Bank’s Procurement Regulations.
Hence, the TKYB/PIU will be supported by an external procurement specialist for the procurement of goods, non-consulting services, and consultants’ services under Component 3 of the project.

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Formal Employment Creation Project (P171766) `o` Total assets during the last two fiscal years to exceed a minimum of €1 billion equivalent on average `o` Compliance with all prudential norms of the Banking Regulation and Supervision Agency `o` General compliance with legal and regulatory requirements applicable to the banking industry, including, but not limited to, such prudential regulations as minimum capital adequacy ratio, maximum foreign currency exposure limits, maximum large exposure to single and connected clients and maximum insider lending limits, and so on, duly certified by the banks’ auditors every year and confirmed by the management as of June 30 every year; in such cases where the year-end audits have already been completed, the bank shall submit a management letter confirming its compliance with prudential norms `o` Audited interim financial reports according to the requirements of the Banking Regulation and Supervision Agency `o` Adequate organization, management, staff, and other resources necessary for its efficient operation `o` Application of their own E&S assessment procedures for screening, monitoring, and reporting as per TKYB ESMS acceptable to TKYB and the World Bank

- For leasing companies, unless agreed otherwise by the World Bank, the following eligibility
criteria will apply: `o` Total lease receivables during the last two fiscal years to exceed a minimum of €50 million equivalent on average `o` New lease volume during the last two fiscal years to exceed a minimum of €50 million equivalent on average `o` The leasing company should have been profitable for at least two out of the last three years of operations `o` Compliance with all prudential norms of the Banking Regulation and Supervision Agency `o` General compliance with legal and regulatory requirements applicable to the leasing industry, including, but not limited to, such regulations as minimum equity capital, the total sum of lease exposures, and the total sum of exposures to related parties, duly certified by the leasing companies’ external auditors every year and confirmed by management as of June 30 every year; in such cases where the year-end audits have already been completed, the leasing company shall submit a management letter confirming its compliance with prudential norms Page 61 of 86


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Formal Employment Creation Project (P171766) `o` Audited financial statements according to the requirements of the Banking Regulation and Supervision Agency `o` Adequate organization, management, staff, and other resources necessary for its efficient operation `o` Application of their own E&S assessment procedures for screening, monitoring, and reporting as per TKYB ESMS acceptable to TKYB and the World Bank

- **PFIs will be responsible from the following:**

`o` PFIs must start and remain in compliance with the eligibility criteria for PFIs and the Environmental and Social Assessment procedures as defined in the Environmental and Social Commitment Plan.

`o` PFIs will be responsible for ensuring that subbeneficiaries comply with the applicable Turkish environmental legislation and regulations and the World Bank ESF.

`o` PFIs will provide the TKYB with a set of documentation for all subfinance to enable it to maintain all project records and make them available for ex post review by the World Bank or by external auditors as necessary.

`o` PFIs will be required to provide reasonable information for the purpose of monitoring and impact assessment for five years after the project closing date or as may be otherwise requested by the World Bank or the borrower.

5. **If a PFI repays at least €20 million of the World Bank funds, the TKYB will onlend or finance the**
**reflows to PFIs within one year to be used for a purpose consistent with the PDO.** Total reflows to be
onlent or financed for at least one financing cycle will be an amount equal to the aggregate of the subsidiary financing, and the selection of PFIs under the reflows will be independent of earlier commitments. Similarly, the TKYB will use the repayments under the direct lending component for new loans for formal job creation for firms operating in provinces with high incidence of refugees through improved access to finance and skills, for at least one financing cycle.

6. **If PFIs do not effectively implement the project, their allocation can be reallocated to other PFIs.** In addition to demonstrating solid financial standing, each prospective PFI will commit to participate in training organized jointly by the TKYB and the World Bank to strengthen their capacity to assess the formal job creation potential of the proposals of viable enterprises operating in areas where refugees are concentrated.

7. **The TKYB will have exposure only to the selected PFIs and will assume the credit risk for**
**onlending funds to PFIs** . PFIs will assume the credit risk of the subbeneficiaries who will be selected based
on an agreed upon eligibility criteria.

8. **Maturity of funds from the TKYB to PFIs and leasing companies will be at a minimum of six**
**years. The funds available to PFIs will depend upon the availability of funds to the TKYB from the World**
**Bank.**

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**B. Detailed Description of Implementation of Subgrants**

13. **TKYB will be the implementing agency of the grant component.** **[34]** 14. **The intended beneficiary firms can apply for a subgrant scheme in which the firms will be asked**
**to submit an employment plan to recruit new employees together with a viable business plan.** The grant
scheme will disburse 20 percent to small enterprises, 32 percent to medium enterprises, and 48 percent to LEs.

15. **Applications will be evaluated by a Grant Evaluation Committee including the TKYB experts and**
**independent evaluators.** The committee will be responsible for preliminary approval of the grants, with
the ‘no objection’ of the World Bank.

16. **Firms applying for a grant are required to submit a business plan, also including job creation**
**targets for the new employees during the period covered by the grant.** Applicant firms will be evaluated
under each grant scheme by the grant evaluation committee based on the evaluation grid presented in box 2.1.

17. **The grant amount can vary between EUR 15,000 and EUR 45,000 for SEs, EUR 25,000 and EUR**
**125,000 for MEs, and EUR 40,000 and EUR 300,000 for LEs.** It is expected – on average across beneficiary
firms - the grant to cover up to 70 of the estimated gross median wage [35] of workers for 18 months (EUR 7.780), conditional to hiring at least 2, 3, 5 new employees in SEs, ME, and LEs respectively. The average grant amount per firm is calculated as EUR 31,000, EUR 108,000, and EUR 295.000 for SEs, ME, and LEs respectively

**Table 1. Estimated Grant Amounts**

Estimated total Grant Amount by firm type (Million EUR) Estimated total Grant Amount by firm type (%) Estimated average grant amount per firm (EUR) Estimated number of grant beneficiary firms Estimated new jobs created per firm Estimated Total Jobs Created by firm type Total Cost per new job in EUR (for 18 months) Small (Below 50) 14 20% 31,000 453 4 1,812 7,780 Medium (50-250) 22 31% 108,000 204 14 2,856 7,780 Large (250+) 34 49% 295,000 114 38 4,332 7,780 All firms 70 100% 90,000 771 9,000 7,780 34 The TKYB already has grant management experience in implementing several grant programs. Most notably Economic and Commercial Cooperation of Organization of Islamic Countries (COMCEC) Project Funding in which the TKYB partners with the Standing Committee for COMCEC for an internationally implemented grant program since 2014. The TKYB is responsible for financing and M&E of this grant program and acts as a contracting entity. The grant program finances institutional capacitybuilding projects of member countries in cooperation areas of agriculture, financial cooperation, poverty alleviation, tourism, trade and transport, and communications (http://www.comcec.org/en/pcm).
35 This corresponds on average to EUR 432.2 per month, an amount very close to the national Minimum Wage. According to the OECD, the national Minimum Wages in Turkey equals to 70 percent of the median wage (see OECD.stat: https://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE).

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Formal Employment Creation Project (P171766) % of additional employment; very poor (1): none / poor (2): <10% / adequate (3): <30% / good (4): <50% / very good (5): ≥50% 3.3. Does the proposal include additional employment of any male refugees? (5 X 2) 7.5 % of additional employment; very poor (1): none / poor (2): <10% / adequate (3): <30% / good (4): <50% / very good (5): ≥50% 3.4. Does the proposal include employment of any female refugees? (5 X 3) 10 % of additional employment; very poor (1): none / poor (2): <10% / adequate (3): <30% / good (4): <50% / very good (5): ≥50% 3.5. Does the proposal include any female Turkish citizen employment? (5 X 2) 7.5 % of additional employment; very poor (1): none / poor (2): <10% / adequate (3): <30% / good (4): <50% / very good (5): ≥50% 3.6. Does the proposal include male Turkish citizen employment? (5 X 1) 5 % of additional employment; very poor (1): none / poor (2): <10% / adequate (3): <30% / good (4): <50% / very good (5): ≥50%

**4. Cost-effectiveness** **15**
4.1. Is the ratio between the estimated costs and the expected results satisfactory? 7.5 (*) employment numbers will be proportionated with the total grand amount (new employment over grant amount 4.2 Are the proposed activities (investment and/or working capital) appropriately reflected in the budget?

7.5

**5. Sustainability** **15**
5.1. Is the action likely to have a tangible impact on its target groups and sustainable 7.5 (financially, institutionally, and environmentally)

- Financially (how will the activities be financed after the EU funding ends?)
- Institutionally (will structures allowing the activities to continue be in place at the
end of the action?

- Environmentally (if applicable) (is the action environmentally sustainable)
5.2. Is the proposal likely to have multiplier effects? (including scope for replication and extension of the outcome of the action and dissemination of information.) 7.5

**Maximum total score** **100**

18. **The PIU will serve as the secretariat of the Grant Evaluation Committee and administer the grant**
**financing tool together with the relevant departments in the TKYB (such as Customer Value**
**Management and Business Development Departments).**

19. **There will be one grant application call happening in all 24 provinces at the same time, possibly**
**followed by a second round in case of insufficient demand.** Grant applications will be received online
through the TKYB website, where related implementation and submission guidelines will also be available.
Applications will be evaluated by a grant evaluation committee including TKYB experts as well as one to four independent evaluators. The committee will be the responsible for preliminary approval of the grants, with the ‘no objection’ of the World Bank. After approval, a grant agreement will be prepared together with the World Bank and will be signed by the beneficiary firm and the TKYB. The grant agreement will include financial, operational, and reporting requirements for the grant. The details of the Page 69 of 86


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Formal Employment Creation Project (P171766) format of the grant evaluation committee meetings and assessment criteria, as well as the rules, duties, and responsibilities of that committee, will be defined in the relevant POM.

20. **The grant disbursement will be done in three tranches, based on the firm’s continual**
**compliance with the employment creation and retention conditionalities under the grant scheme.** [36] The
PIU will consider a cutoff baseline date (for example, three months before the grant award date) to assess the firms’ progress toward complying with the proposed employment targets, depending on the latest official data sources available on the firm’s formal employment. Grant beneficiary firms will have six months to hire new employees from the date of grant award. The first tranche will be disbursed only when the TKYB verifies the existence of new hires using SGK administrative data. The tranche will be weighted by the share of the actual new hires to the total new hires proposed in the business plan (for example, if a beneficiary firm reports that it will hire six new employees but hires three of them within first couple of months, then the firm will be awarded 50 percent of the grant amount). This grant amount will be treated as a subgrant for the firm, and the following subgrants will be awarded once the remaining employment conditions are met at every nine-month interval). The second employment conditionality check will take place nine months after the first tranche disbursement for the beneficiaries under the grant scheme. The second tranche will be disbursed only after the second conditionality check is met and will be weighted again by the proportion of new employees (on the total employment target) hired for at least nine months at the date of the second conditionality check for beneficiaries. The third employment conditionality check will happen nine months after the second tranche disbursement for the beneficiaries under the scheme.
The third tranche will be disbursed proportional to the number of new employees hired for at least 18 months for the scheme beneficiaries. If some of the firms fail to fulfill the employment conditions, the TKYB will provide an additional period (up to six months) for compliance. The Bank will support TKYB to develop a case management system. The next conditionality check will be conducted once the employment condition is met. If some firms cannot fulfill the conditions or leave the grant program, then the remaining resources will be used to finance new firms.

21. **Monitoring compliance with the conditionalities.** Monitoring of compliance with the conditionalities will rely on official employment data from SGK. To assess the compliance of grantbeneficiary firms with the formal employment creation and retention targets specified in the business plan at the moment of application (including the consent of the employers and employees to be taken in line with the requirements of the Law on Protection of Personal Data, Law no. 6698), the PIU at the TKYB will receive regular employment and wage records for beneficiary firms from SGK at grant allocation, every six months thereafter, and periodically following requests for disbursements and claims of conditionality compliance by beneficiary firms. The PIU will also monitor the compliance of working conditions of the employees in accordance with labor law and labor and working conditions defined in ESS2 of ESF of the 36 The three tranches will be cumulative 20 percent, cumulative 60 percent, and cumulative 100 percent of the awarded grant amount.

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SGK administrative data
official employment data from SGK


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**ANNEX 4: Additional Sectoral Background**

1. The World Bank’s enterprise surveys have been collected to understand what firms experience in
the private sector. It follows a global methodology and provides a wide range of business environment topics including access to finance indicators.

2. To estimate the effects of access to finance constraints on firms’ employment growth, both subjective and objective measures of the investment climate (that is, access to finance) were used. The regression results are presented in tables 4.1 to 4.4 based on the models where employment growth is the dependent variable and the independent variables are those measuring access to finance constraints (such as industry, sector, firm’s ownership and firm’s age).

3. The primary variable of interest is having access to finance obstacle, which is the access to finance constraint perceived by the firms as the top obstacle for business environment. If the access to finance is the top obstacle by the firms for employment growth, it will have a negative sign. The results presented in tables 4.1 and 4.2 show that the access to finance constraint has a significant negative effect on employment growth for small firms (5–49 employees) and large firms (more than 250 employees). The effect is stronger for the large firms.

**Table 4.1. Effect of Access to Finance on Employment Growth, Using Subjective Measure of Access to Finance**

Dependent variable: Average growth in employment Pooled cross sections: 2008, 2013-14 and 2015-16 Firm size: Less than Firm size: Firm size: Firm size: 5 5-49 50-249 250+ VARIABLES All firms employees employees employees employees Biggest Business Environment Obstacle is: Access to Finance -0.0076* 0.0042 -0.0205*** 0.0152 -0.1343** (0.004) (0.003) (0.007) (0.010) (0.059) Constant 0.1110*** 0.0473* 0.1328*** 0.1612*** 0.3617*** (0.011) (0.026) (0.014) (0.022) (0.124) Observations 6,562 2,185 2,530 1,220 627 R-squared 0.109 0.045 0.133 0.101 0.519 Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
_Source_ : Enterprise Survey, 2008, 2013–14, and 2015–16.
_Note_ : Explanatory variables include firm size and age, firm’s ownership status, industry, region, and year.

5-49 employees 50-249 employees VARIABLES All firms 5 employees

**Table 4.2. Effect of Access to Finance on Employment Growth, Using Subjective Measure of Access to Finance**

Dependent variable: Growth in employment Pooled cross sections: 2008, 2013-14 and 2015-16 Firm size: 5-49 employees Firm size: 50-249 employees Firm size: 5 5-49 50-249 250+ VARIABLES All firms employees employees employees employees Biggest Business Environment Obstacle is: Access to Finance -0.1279 0.0192 -0.0977*** 0.0694 -4.5589*** (0.087) (0.012) (0.034) (0.053) (1.762) Constant 1.3017*** 0.2374** 0.6930*** 0.8355*** 6.4888* (0.224) (0.098) (0.063) (0.118) (3.715) Observations 6,562 2,185 2,530 1,220 627 R-squared 0.056 0.041 0.143 0.091 0.491 Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
_Source:_ Enterprise Survey, 2008, 2013–14, and 2015–16.
_Note:_ Explanatory variables include firm size and age, firm’s ownership status, industry, region, and year.

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Formal Employment Creation Project (P171766) 4. The objective measure of access to finance uses the definition of credit constrained status of Kunchev et al. (2013). [ 41] The variable has the following four categories: (a) fully credit constrained (FCC), [42] (b) partially credit constrained (PCC), [43] (c) likely credit constrained (LCC), [44] and (d) non-credit constrained (NCC). The regression results reveal that credit constraint status has a significant positive effect on employment growth among private and formal firms in Turkey. If a firm has greater access to finance markets, it will experience higher employment growth. Experiencing a credit constraint is a more serious problem for microenterprises and SMEs compared to large firms.

**Table 4.3. Effect of Access to Finance on Employment Growth, Using Objective Measure of Credit Constraint**

**Status**

Dependent variable: Average growth in employment Pooled cross sections: 2008, 2013-14 and 2015-16 Firm size: 5-49 employees Firm size: 50-249 employees Firm size: 5 5-49 50-249 250+ All firms employees employees employees employees Partially Credit Constrained (PCC) 0.0114* 0.0051 0.0263** 0.0160 0.1771 (0.006) (0.005) (0.011) (0.017) (0.135) Likely Credit Constrained (LCC) 0.0160*** 0.0128*** 0.0182* 0.0558*** 0.1158 (0.006) (0.005) (0.010) (0.010) (0.096) Not Credit Constrained (NCC) 0.0134*** 0.0061* 0.0240*** 0.0168* 0.0196 (0.004) (0.003) (0.008) (0.010) (0.082) Constant 0.1032*** 0.1067*** 0.0729*** 0.1007*** 0.7243*** (0.012) (0.033) (0.015) (0.021) (0.160) Observations 5,984 2,412 2,046 992 534 R-squared 0.085 0.038 0.072 0.123 0.568 Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
_Source_ : Enterprise Survey, 2008, 2013–14, and 2015–16 _Note_ : Explanatory variables include firm size and age, firm’s ownership status, industry, region, and year. Control group for credit constraint status is FCC.

All firms Firm size: Less than 5 employees 41 Kuntchev, V., Ramalho, R., Rodriguez-Meza, J., Yang, J.S., 2013. What have we learned from the Enterprise Surveys regarding access to finance by SMEs? Policy Research Working Paper 6670. World Bank, Washington D.C.
42 The firms in the FCC group applied for a loan and were rejected and do not have any type of external finance. Firms in the FCC group meet all the following conditions simultaneously: (a) did not use external sources of finance for both working capital and investments during the previous year, (b) applied for a loan during the previous year, and (c) do not have a loan outstanding at the time of the survey that was disbursed during the last fiscal year or later.
43 The firms in the partially credit constrained group meet the following conditions: (a) used external sources of finance for working capital or investments during the previous fiscal year or have a loan outstanding at the time of the survey; (b) did not apply for a loan during the previous fiscal year and the reason for not applying for a loan was other than having enough capital for the firm’s needs; some of the reasons may indicate that firms self-select out of the credit market because of prevailing terms and conditions; thus some degree of rationing is assumed; or (c) applied for a loan but was rejected.
44 The firms in the LCC group have had access to external finance and there is evidence of them having bank finance and the LCC group includes firms that (a) used external sources of finance for working capital or investments during the previous fiscal year or have a loan outstanding at the time of the survey or (b) applied for a loan during the previous fiscal year.

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**Table 4.4. Effect of Access to Finance on Employment Growth, Using Objective Measure of Credit Constraint**

**Status**

Dependent variable: Growth in employment Pooled cross sections: 2008, 2013-14 and 2015-16 Firm size: 5-49 employees Firm size: 50-249 employees Firm size: 5 5-49 50-249 250+ All firms employees employees employees employees Partially Credit Constrained (PCC) 0.0865 0.0199 0.1157** 0.0703 5.9283 (0.134) (0.018) (0.050) (0.073) (4.044) Likely Credit Constrained (LCC) 0.0816 0.0639*** 0.0866* 0.2174*** 3.4668 (0.130) (0.018) (0.045) (0.045) (2.869) Not Credit Constrained (NCC) 0.1264 0.0226* 0.0963*** 0.0645 0.0900 (0.097) (0.013) (0.036) (0.042) (2.441) Constant 1.9124*** 0.4297*** 0.4076*** 0.5504*** 16.8318*** (0.264) (0.129) (0.067) (0.090) (4.765) Observations 5,984 2,412 2,046 992 534 R-squared 0.062 0.036 0.071 0.113 0.546 Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
_Source_ : Enterprise Survey, 2008, 2013–14, and 2015–16 _Note_ : Explanatory variables include firm size and age, firm’s ownership status, industry, region, and year. Control group for credit constraint status is FCC.

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**ANNEX 5: Review of the Literature and Relevant Projects**

1. This section presents a summary of the existing evidence on the effectiveness of finance
interventions (both World Bank and non-World Bank) aimed at improving access to credit and employment generation among microenterprises and SMEs. The analysis reviewed 38 impact evaluation studies covering four main types of finance interventions: (a) lines of credit, (b) microcredit, (c) cash and in-kind grants and transfers, and (d) formalization interventions. A total of 17 studies focused on lines of credit, 7 studies focused on microcredit, 6 studies covered cash and in-kind grants, while 4 studies centered on formalization interventions. Four studies investigated ‘access to credit’ but without specifying the type of credit product.

2. **Overall, improving access to finance appears to have a positive and significant impact on**
**employment generation** . Out of 22 interventions targeted at employment generation, 20 show positive
and statistically significant impacts, while the remaining 2 report no effects. A cross-country analysis reviewed shows that, when provided with access to credit, microenterprises and SMEs are found to experience 1 percent to 4 percent increase in employment. [45] Expanding financing helps microenterprises and SMEs expand their operations, grow in size, and also preserve existing jobs, especially in periods of economic and financial downturn. Evidence from the cases under review, however, reveals that the impact of access to credit is not homogenous, as it varies with specific firm characteristics as well as the form of finance interventions.

3. **Firm size and age stand as the major demand-side constraints to access to credit** . Smaller and younger firms appear to be more in need of credit but also more financially constrained than larger and older firms. In Turkey, the probability of accessing credit is 1.8 times higher for medium than micro firms, and 2.8 times higher for large than micro firms. [46] This is consistent with the findings from China, where large firms may have a 52 percent to 65 percent higher probability of investing relative to only 19 percent to 35 percent of small firms. This suggests a positive association between size and access to credit. [47] 4. **Despite their credit needs, however, younger and smaller enterprises are also more likely to**
**hold off from applying for loans** . Reticence seems to be associated with fear of rejection, perception of
unfavorable collateral requirements and high interest rates; management inexperience may also account as a possible reason for failing to apply. [48] This implies that combining finance interventions with business development services or entrepreneurship training may have a greater and more positive impact on employment generation.

45 Ayyagari, Juarros, Martinez Peria, and Singh. 2016. “Access to Credit and Job Growth: Firm-Level Evidence across Developing Countries.” Policy Research Working Paper 7604, World Bank, Washington, DC.
46 Mutluer, K., and S. Tiryaki. 2016. “How Credit-Constrained Are Firms in Turkey? A Survey-Based Analysis.” _Applied Economics_ _Letters_ 23 (6): 420–423.
47 Regis, Paolo Jose. 2018. “Access to Credit and Investment Decisions of Small- and Medium-Sized Enterprises in China.” _Review_ _of Development Economics_ 22: 766–786.
48 Cole, R., and A. Dietrich. 2014. “SME Credit Availability Around the World: Evidence from the World Bank’s Enterprise Survey.” World Bank, Washington, DC.

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Formal Employment Creation Project (P171766) 5. **The implication is that access to credit has a greater impact on expanding credit availability and**
**spurring employment generation for younger and smaller firms than for older and larger firms** . [49] When
provided with adequate capital, ‘gazelle’ firms and young firms show a higher job growth potential than larger and older counterparts. Based on a cross-country analysis included in this review, access to credit generated a 6 percent to 24 percent increase in employment among microenterprises and SMEs compared with large firms (Ayyagari, Peria, and Singh 2016). Only one study in the United States found that large firms generate a greater number of jobs than smaller firms. In particular, a loan of US$1 million was found to generate 2.2 jobs in small firms, 3.0 jobs in medium firms, 4.0 jobs in large firms, and 5.9 jobs in the largest firms. However, the study also highlighted that start-ups created 5.3 jobs because of the loan and that large firms were the least financially constrained. Therefore, the marginal impact of credit was greater for start-ups and small firms. [50] In line with these results, evidence grants awarded to Nigeria high-growth entrepreneurs in a business plan competition generated a 23 percent increase in the probability for new winning firms of employing more than 10 workers after 18 months from grant reception and a 20.8 percent increase in the same probability for existing firms. [51] 6. **Ceteris paribus, women-owned firms appear to face more severe financial constraints than their**
**men-owned counterparts** . They also tend to have lower incentives to find external sources of funding, as
‘discouraged firms’ as well as denied firms are found to be more likely to be run by women rather than by men (Cole and Dietrich 2014). As a result, women-owned firms seem less likely to invest than men-owned firms. In Uganda, capital drops in the form of microloans failed to generate business profits for womenowned microenterprises, while microloans were associated with 50 percent increase in business profits for men-owned businesses. Women also tend to suffer more from limited access to credit. Credit constraints for Nigerian men-owned microenterprises and SMEs translated into a 16.4 percent to 24 percent lower output per worker, 17 percent to 23 percent lower capital per worker, and a 28 percent to 30 percent lower investment in fixed assets. However, results were much larger for women-owned firms: respectively, 64.7 percent, 60.0 percent, and 48.4 percent (Nwosu and Orji 2017). This suggests not only that women tend to be more credit constrained than men, but also that credit-constrained women face other limitations than just credit in their ability to invest in their businesses.

7. **When considering specific forms of finance interventions, lines of credit targeted to SMEs show**
**comparatively greater potential to spur employment growth** . Out of 15 studies investigating the impact
of lines of credit, 10 had a specific employment focus. All 10 studies reported that lines of credit had positive and significant effects on employment generation. For instance, a World Bank-financed onlending program targeted at SMEs resulted in the creation of 7,000 jobs and the preservation of 35,000 jobs among beneficiary firms in Turkey. Also, compared with nonbeneficiary firms, beneficiary firms created more jobs. Employment effects persisted after three years from disbursement (World Bank 2016).
Similarly, in the United States, the Small Business Investment Company (SBIC) program generated nearly 3 million jobs and preserved roughly 7 million jobs among beneficiaries. [52] 49 Paniagua, G., and A. Denisova. 2012. “Meta-Evaluation on Job Creation Effects of Private Sector Interventions.” World Bank Working Paper 82000: 1-42, World Bank, Washington, DC.
50 Brown, D., J. Earle, and Y. Morgulis. 2015. “Job Creation, Small vs. Large vs. Young, and the SBA.” IZA DP No. 9489 _._ 51 Nwosu, E., and A. Orji. 2017. “Addressing Poverty and Gender Inequality through Access to Formal Credit and Enhanced Enterprise Performance in Nigeria: An Empirical Investigation.” _African Development Review_ 29 (S1): 56-72.
52 Paglia, J., and D. Robinson. 2017. “Measuring the Role of the SBIC Program in Small Business Job Creation.” Library of Congress, Washington, DC.

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