IMPACT BRIEF 2011

Putting local wealth to work

Development Credit Authority

Abe lives in Ethiopia and wants a loan to build a poultry farm. His local bank has the money but prefers ultra safe investments.

Ben HubbardDirectorDevelopment Credit AuthorityUSAID

In the 1960s, during USAID’s founding decade, official development assistance represented 70 percent of all capital flows to developing countries. Today, foreign aid makes up just 13 percent, having been replaced over time by trade, investment, and other sources of private capital.

This changing landscape means our impact can be even greater. Rather than using our development dollars to substitute for missing private capital, we can use them to attract it. Even better, we can unlock existing local wealth and put it to work for development.

That’s what we do at the Development Credit Authority (DCA).

In our 12 year history issuing credit guarantees, DCA has worked directly with more than 200 local private financial institutions, reaching more than 100,000 credit-worthy, but underserved borrowers. In 2011 we established 37 guarantees that will mobilize an additional $200 million in commercial capital in 21 countries.

Among the highlights, we supported the first-ever municipal bond offering in Serbia, a historic step in the development

of their local capital markets. We finalized a $25 million deal with J.P Morgan Chase and a group of impact investors that will fuel economic growth in East Africa by providing equity financing for small businesses. And we signed a $34 million guarantee in Egypt that will mobilize capital for small businesses that lack access to credit following the turmoil of the Arab Spring.

Aside from these unique deals, DCA created a Strategic Transactions Group in order to develop capital markets alternatives to typical development solutions. At the Agency level, Field

Investment Officers are being deployed to our regional missions to originate innovative deals and ensure financing solutions become a critical component of USAID programming.

This is a good start. In the coming year we will further deepen our work across the Agency, helping to incentivize private investment so that development continues long after we exit.

MEET ABE. HE CAN’T GET A LOAN.

View all of our 2011 Activity Online

$4.5

$34

$25

$48

$17.2

$3$13.5

$2.1

$5$1.15

2011 Guarantee Highlights

Food Security A $4.5 million guarantee in Kenya will support food security by increasing access to finance for small enterprises in agriculture value chains. In 2011, 14 DCA guarantees totaling nearly $74 million were established to make the world more food secure.

PEPFAR USAID and the U.S. Global AIDS Program, PEPFAR, partnered to unleash $13.5 million in private capital for AIDS relief in Ethiopia.

Arab Spring Political upheaval and uncertainty following the Arab Spring made conservative banks in Egypt even more reluctant to provide loans to small and medium sized businesses. A $34 million guarantee will mobilize local lending for businesses that will drive Egypt’s growth.

Education USAID launched a credit guarantee that will make available $5 million in local private capital to support student loans for Indonesian students over the next 20 years, including those interested in studying in America.

Guarantee with a Sharia Lender A $1.15 million guarantee with Indonesia’s oldest sharia bank will provide financing for low-income Indonesian women to run their own businesses, marking USAID’s first-ever guarantee with a sharia compliant institution.

Bond Markets A USAID guarantee supported the first municipal bond issuance in Serbia, a historic step in the development of local capital markets. The $48 million bond will raise funds for road construction and a wastewater project.

Environment A $17.2 million guarantee in Guatemala will strengthen access to finance for forestry enterprises, all of which will have to adhere to Rainforest Alliance’s Sustainable Forest Management practices.

Collaboration USAID, J.P Morgan, the Gates, Rockefeller, and Gatsby Charitable Foundations, announced a $25 million investment in a private equity fund to support small agriculture enterprises in East Africa. A USAID guarantee will back an $8 million commercial loan from J.P Morgan’s Social Finance Unit.

Microcredit $1.5 million in joint guarantees from Grameen Foundation and USAID will enable a Peruvian savings and credit cooperative to support $3 million in local currency financing for two Peruvian microfinance institutions.

Youth A $2.1 million guarantee will support lending in Kosovo to create jobs and foster an entrepreneurial culture for Kosovo’s youth.

USAID provides business guidance to Abe and shares risk with the bank if Abe cannot repay his loan.

CreditGuaranteeENTER USAID

ABE GETS A LOAN TO BUILD HIS FARMLOCAL PRIVATE BANK

Key ResultsIn 2011, DCA initiated 37 credit guarantees in 21 countries that will result in up to $200 million in private capital for local loans. This year we reached our 100,000th borrower. Since 1999, USAID has paid out $8.3 million on defaults, but collected $10 million in bank fees. With the security of the guarantees, up to $2.3 billion in credit has been made available in 67 countries.

Alemayehu Belete, a poultry worker at a DCA borrower’s farm in Ethiopia. Credit: Morgana Wingard

37 10million

millionmillion

billion

21200 8.3106,596 2.3

guarantees dollars collected in bank feescountries

in private capital for entrepreneurs dollars paid out on defaults

borrowers

2011 Total Portfolio

dollars banks are able to lend

ABE’S FARM BENEFITS HIS COMMUNITY

Independent Evaluation 2011Moldova In 2005, a five-year, $4 million loan portfolio guarantee to FinComBank supported loans to small agribusinesses in rural areas of Moldova.

DCA Borrower in MoldovaCredit: Stephanie Grosser/USAID

48%2

33%

of borrowers remain clients

local guarantee funds were established

increase of credit to the agriculture industry

48 percent of borrowers under the guarantee remain clients of FinComBank, and still receive loans without the backing of a USAID guarantee.

Two local guarantee funds for borrowers lacking credit history and sufficient collateral were created in Moldova and were inspired by USAID’s guarantees.

Overall credit to the agricultural sector in Moldova increased 33 percent from 2004 to 2010, and the emphasis in lending shifted away from lending to larger agricultural enterprises in favor of smaller agricultural producers.

Erbeto Woldesenbet, an employee at a DCA borrower’s agribusiness in Ethiopia.

Credit: Morgana Wingard

ABE PAYS BACK HIS LOAN, JUST LIKE 98.25% OF USAID --SUPPORTED BORROWERS

defaults

repaid loans

Hannington and his wife Justine started a fruit farm in southwestern Uganda because they wanted to grow something different from the crops traditionally grown in the country. They knew products high in vitamin C were in demand by the many people living with HIV/AIDS throughout the region. Therefore they started growing pineapples, mangos, grapes, and other fruits. However their farm was not operating at its full potential because it lacked an irrigation system.

Thanks to a USAID-backed credit guarantee with a private, local bank in Uganda, Hannington and Justine qualified for a loan for an irrigation system.

As a result, their crop yields skyrocketed, allowing them to hire 20 additional workers more than the original 40 they already employed.

Under this guarantee, designed to increase food production in Uganda by increasing the capacity of local farmers, a Ugandan bank has already lent three-quarters of a million dollars to local farmers. Thus far there have been no defaults, increasing the bank’s confidence in the agribusiness sector.

DCA’s 100,000th Borrower Hannington and Justine: Pineapple farmers in Uganda

Watch the video

Client: Hannington and Justine

Country: Uganda

Business: Fruit Farm

Product: Financial Loan, Loan Portfolio Guarantee

Hannington and Justine with their three childrenCredit: Morgana Wingard

After participating in USAID’s guarantee program, banks realize the profitability of lending to people like Abe. As a result, lending has been opened

for tens of thousands of borrowers around the world without a guarantee.

EMPOWERING PEOPLE LIKE ABE AROUND THE WORLD

developmentcredit@usaid.govwww.usaid.gov

U.S. Agency for International DevelopmentOffice of Development Credit 1300 Pennsylvania Avenue, NW Washington, DC 20523

Tel. (202) 712-5413 Fax (202) 216-3228

facebook.com /usaid.dca

@USAID_Credit