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Development Credit Authority (DCA)
An Effective Catalyst for
Economic Growth
that Supports
Private Investments
in
Developing
Countries
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Objectives for Successful Development
U.S. GOV’T APPROACH
 Investing in People
DCA COMMITMENT
 Facilitate access to credit that
otherwise would not be feasible
 Tapping
Local Resources
 Build partnerships with local
financial institutions to share risk
 Attracting
Trade and Investment
 Develop key sectors with
demonstration effects that show
financial viability
 Attacking Poverty
through Productivity
 Widen economic growth
opportunities to be shared with a
more diverse base
Successful Development: Models for the 21st Century, USAID
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Development Credit Authority (DCA)
DCA is a dynamic tool:
•
Flexibly structured
•
Focused on risk-sharing
•
Fully supported by USAID resources
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DCA - what it does
• Encourages increased lending by
local banks to new areas and various
“development” sectors.
•
Covers debt denominated in local
currency, so exchange rate risk is
eliminated.
• Enables financing of ‘bankable’
projects that otherwise lack access to
credit from private financial markets.
•
Demonstrates the financial viability
of lending to new areas to promote
development or expansion of credit
market.
• Shares up to 50% of debt risk with
private sector partner.
•
Allows for technical assistance to
lenders and borrowers.
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DCA Benefits – why it works
DCA provides significant budget leverage
 For 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.
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DCA Products – what it offers
Loan Guarantee
– Financial institution
receives up to 50%
coverage on principal
amount of loan.
Portable Guarantee
– A DCA letter of commitment
allows borrower to seek best
terms from financial markets.
Portfolio Guarantee
Bond Guarantee
– Financial institution receives up
– Protects investors on a
to 50% coverage on principal
portion of a bond issuance.
amount of a portfolio of loans
Used for municipal or
they provide to their customers.
private sector financing.
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DCA Process – how it works
Identify and Design
Develop
Review of cost to US
Gov’t
Monitor
 Overseas Missions identify and design projects
with DCA Partners (e.g., private banks, nonbank 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
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DCA – steps in the process
1. Development Analysis
How does the project support
a Mission’s Strategic Objective?
2. Economic Viability Analysis
Is USAID the “guarantor of last
resort”? Is there a market
imperfection in the sector
and/or related to credit access?
3. Financial Viability Analysis
Will the borrower(s) generate
sufficient income to cover
operating and debt costs? Will
the lender(s) make profits?
4. Credit Risk Assessment
USAID Office of Development
Credit to calculate “subsidy” cost
= ‘loan loss reserve’ or insurance
premium to the Mission.
5. Fees Justification
How were the origination and
utilization fees established?
6. Monitoring Plan
How will the Mission manage the
project?
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DCA Costs – things to think about
50% of
Estimated
Loan
Defaults
Cash Outflow
Less
Estimated
Collected
Fees
Cash Inflow
=
Subsidy
Cost
Cost to USAID
Note: There are no initial USAID funds transferred to DCA partners; USAID
funds are only paid after a borrower defaults on its loan/bond.
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DCA Portfolio
• 95 guarantees have been
approved since FY1999 for a
potential $754 million of loans
under coverage.
Approved DCA Guarantee Facilitities
60
350
50
300
250
40
30
20
0
No of Facilities
0
FY 99
FY 00
FY 01
FY 02
FY 03
Guarantee Facilities in Effect
50
350
300
40
250
30
200
150
20
• Current utilization is $66 million.
Amount (US$ millions)
150
100
50
10
• 78 projects with a total obligated
amount of $601 million for
guaranteed loans is currently in
effect.
200
100
10
50
0
0
FY 99
FY 00
FY 01
FY 02
FY 03
Amount (US$ millions)
No of Facilities
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DCA Portfolio – Global Scope
Europe & Eurasia (23)
Armenia (4)
Kazakhstan
Bosnia (4)
Romania
Bulgaria (6)
Russia
Croatia
Ukraine
Moldova (4)
Latin America &
Caribbean (17)
Ecuador
Guatemala (2)
Honduras (3)
Jamaica
Mexico (2)
Nicaragua
Peru (5)
Regional (2)
Africa (18)
Ghana (2)
Kenya (3)
Mali (2)
South Africa (4)
Uganda (7)
Asia & Near East (20)
Bangladesh (2)
Egypt (2)
India (2)
Morocco (9)
Philippines (2)
Vietnam (3)
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DCA Portfolio – Sectoral Distribution
Housing: Develop housing mortgage lending and
secondary mortgage markets
SME: Promote productive investment in small and
medium sized enterprises
Water, 12.1%
Infrastructure, 11.9%
Agriculture: Promote lending for agribusiness
Agriculture, 12.9%
Water: Support investment in water supply initiatives
Environment, 6.7%
Infrastructure: Support infrastructure investments for
municipal service delivery
Micro, 5.7%
Health, 0.1%
SME, 22.1%
Education, 0.1%
Housing, 28.3%
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
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DCA example - Morocco
Type: Portable Loan Guarantee
Amount: $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.
Banks
USAID
50% Guarantee
Loan
Al Amana
Loans
Loans
Micro-enterprises
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DCA example - Mali
Type: Loan Portfolio Guarantee
Amount: $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.
Bank of
Africa
BICIM
DCA 50%
Guarantee
Portfolio
of Loans
Agribusinesses
Agribusinesses
Portfolio
of Loans
Agribusinesses
Agribusinesses
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DCA example - Uganda
Managing
Institution
Type: Loan Portfolio Guarantees
Loan: $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.
Technical
Assistance
Uganda
Banks
DCA 50%
Guarantee
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.
Portfolio
of Loans
Target
Sector
SMEs
Monitoring &
Reporting
Target
Sector
MFIs
MFI = MicroFinance Institution
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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.
Banco del Café
Loans
USAID
50% guarantee
Targeted Sectors
NGOs
MicroEnterprises Targeted Sectors
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Development Credit Authority
US Agency for International Development
Ronald Reagan Building
1300 Pennsylvania Ave NW
Washington, DC 20523-3800
Phone: +1.202.712.1380
Fax: +1.202.216.3593
Email: odc@usaid.gov