Post on 16-Mar-2016
description
1
Development Credit Authority (DCA)
An Effective Catalyst forEconomic Growth
that Supports Private Investments in
Developing Countries
2
Objectives for Successful Development
U.S. GOV’T APPROACH Investing in People
Tapping Local Resources
Attracting Trade and Investment
Attacking Poverty through Productivity
DCA COMMITMENT Facilitate access to credit that
otherwise would not be feasible
Build partnerships with local financial institutions to share risk
Develop key sectors with demonstration effects that show financial viability
Widen economic growth opportunities to be shared with a more diverse base
Successful Development: Models for the 21st Century, USAID
3
DCA is a dynamic tool:
• Flexibly structured• Focused on risk-sharing• Fully supported by USAID resources
Development Credit Authority (DCA)
4
DCA - what it does
• Encourages increased lending by local banks to new areas and various “development” sectors.
• Enables financing of ‘bankable’ projects that otherwise lack access to credit from private financial markets.
• Shares up to 50% of debt risk with private sector partner.
• Covers debt denominated in local currency, so exchange rate risk is eliminated.
• Demonstrates the financial viability of lending to new areas to promote development or expansion of credit market.
• Allows for technical assistance to lenders and borrowers.
5
DCA Benefits – why it works
DCA provides significant budget leverageFor every dollar (or local currency equivalent) loaned
pursuant to a DCA guarantee, the cost to USAID is approximately 2 to 7 cents.
DCA leverages the knowledge and resources of its partners Since DCA partners’ money is at equal risk, the partners
can be relied on to provide highly reliable information on due diligence and monitoring.
6
DCA Products – what it offers
Loan Guarantee– Financial institution
receives up to 50% coverage on principal amount of loan.
Bond Guarantee– Protects investors on a
portion of a bond issuance. Used for municipal or private sector financing.
Portable Guarantee – A DCA letter of commitment
allows borrower to seek best terms from financial markets.
Portfolio Guarantee– Financial institution receives up
to 50% coverage on principal amount of a portfolio of loans they provide to their customers.
7
DCA Process – how it works
Overseas Missions identify and design projects with DCA Partners (e.g., private banks, non-bank financial institutions, NGOs, and municipal governments).
Economic and financial viability analyses, monitoring plan, fees justification
Credit Risk Assessment – country, lender, borrower and transaction risk components
USAID/Washington reviews subsidy ‘cost’ estimate and financial viability analysis
Utilization and development impact reporting, fees collection and claim payments
Review of cost to US Gov’t
Develop
Monitor
Identify and Design
8
DCA – steps in the process
1. Development AnalysisHow does the project supporta Mission’s Strategic Objective?
2. Economic Viability AnalysisIs USAID the “guarantor of lastresort”? Is there a marketimperfection in the sectorand/or related to credit access?
3. Financial Viability AnalysisWill the borrower(s) generatesufficient income to coveroperating and debt costs? Willthe lender(s) make profits?
4. Credit Risk AssessmentUSAID Office of DevelopmentCredit to calculate “subsidy” cost = ‘loan loss reserve’ or insurancepremium to the Mission.
5. Fees JustificationHow were the origination andutilization fees established?
6. Monitoring PlanHow will the Mission manage theproject?
9
DCA Costs – things to think about
50% of Estimated
Loan Defaults
Estimated Collected
FeesLess = Subsidy
Cost
Note: There are no initial USAID funds transferred to DCA partners; USAID funds are only paid after a borrower defaults on its loan/bond.
Cash Outflow Cash Inflow Cost to USAID
10
DCA Portfolio
• 95 guarantees have been approved since FY1999 for a potential $754 million of loans under coverage.
• 78 projects with a total obligated amount of $601 million for guaranteed loans is currently in effect.
• Current utilization is $66 million.
Approved DCA Guarantee Facilitities
0
10
20
30
40
50
60
FY 99 FY 00 FY 01 FY 02 FY 03050100150200250300350
Amount (US$ millions)
No of Facilities
Guarantee Facilities in Effect
0
10
20
30
40
50
FY 99 FY 00 FY 01 FY 02 FY 03050100150200250300350
Amount (US$ millions)
No of Facilities
11
DCA Portfolio – Global Scope
Latin America & Caribbean (17)EcuadorGuatemala (2)Honduras (3)JamaicaMexico (2)NicaraguaPeru (5)Regional (2)
Asia & Near East (20)Bangladesh (2)Egypt (2)India (2)Morocco (9)Philippines (2)Vietnam (3)
Europe & Eurasia (23)Armenia (4) KazakhstanBosnia (4) RomaniaBulgaria (6) RussiaCroatia UkraineMoldova (4)
Africa (18)Ghana (2)Kenya (3)Mali (2)South Africa (4)Uganda (7)
12
DCA Portfolio – Sectoral DistributionHousing: Develop housing mortgage lending and secondary mortgage markets
SME: Promote productive investment in small and medium sized enterprises
Agriculture: Promote lending for agribusiness
Water: Support investment in water supply initiatives
Infrastructure: Support infrastructure investments for municipal service delivery
Environment: Facilitate credit toward environmental conservation and protection initiatives
Micro: Encourage private lending to micro enterprises
Health: Encourage investments in health and medicine
Education: Develop private sector credit mechanisms to support education projects
13
DCA example - Morocco
Type: Portable Loan GuaranteeAmount: $1,000,000 (Moroccan Dirham equivalent)Guarantee Ceiling: $500,000 Purpose: Increase Al Amana’s capital and thereby enable it to provide additional financing to micro-enterprises in Morocco. The USG guarantee commitment letter allows Al Amana to secure more favorable financing terms from local banks that have been reluctant to lend to the microfinance industry.Leverage Ratio: 50 to 1. The estimated cost to the USG for issuing the Guarantee on the $1,000,000 loan is approximately $20,000.
Loan USAID 50% Guarantee
Banks
Al Amana
LoansLoans
Micro-enterprises
14
DCA example - Mali
Type: Loan Portfolio GuaranteeAmount: $3,700,000 (equivalent in Mali CFA Francs)
Guarantee Ceiling: $1,850,000 Purpose: To expand medium-term lending opportunities for agribusinesses to support fixed asset investment lending. Leverage Ratio: 37 to 1. The estimated cost to USAID is approximately $99,000.Role of Technical Assistance: Chemonics International, through its Agro-Enterprise Center (AEC), has assisted numerous agribusinesses since the late 1990s. AEC continues to emphasize the development of business plans, which identify fixed asset investment opportunities and the capacity of these enterprises to repay the external financing required for the debt portion of the investment. USAID/Mali and AEC view DCA as a means to provide access to financing for these investments.
Agri-businesses
Portfolio of Loans
Agri-businesses
Agri-businesses
Agri-businesses
Portfolio of Loans
DCA 50%Guarantee
BICIMBank ofAfrica
15
DCA example - Uganda
Type: Loan Portfolio GuaranteesLoan: $30,000,000 (equivalent in Ugandan shilling)
Guarantee Ceiling: $15,000,000 Purpose: To increase credit access to small and medium enterprises (SMEs) and agribusinesses, and to expand commercial bank lending to trade finance deals involving the export of grains and lending to MFIs. Leverage Ratio: 31 to 1. The estimated cost to USAID is approximately $975,000.Role of Technical Assistance: To provide significant technical assistance in conjunction with these guarantees, including as the “Managing Institution” identified in the diagram at right, through a variety of ongoing contracts. Target
SectorSMEs
TargetSectorMFIs
UgandaBanks
Portfolio of Loans
ManagingInstitution
Technical Assistance
Monitoring &Reporting
DCA 50%Guarantee
MFI = MicroFinance Institution
16
DCA example - Guatemala
Type: Loan Portfolio Guarantee
Loan: $5,000,000 (equivalent in Guatemalan Quetzale)
Guarantee Ceiling: $2,500,000 Purpose: To promote public and private sector investments in rural market towns to provide agribusinesses with expanded opportunities for processing and selling their products.
Leverage Ratio: 23 to 1. The estimated cost on $5,000,000 loan portfolio is approximately $220,000.
Loans
Banco del Café
USAID50% guarantee
Targeted Sectors NGOs
Targeted SectorsMicroEnterprises
17
Development Credit Authority
US Agency for International DevelopmentRonald Reagan Building
1300 Pennsylvania Ave NWWashington, DC 20523-3800
Phone: +1.202.712.1380Fax: +1.202.216.3593
Email: odc@usaid.gov