Guiding Principles
1. DCA is principally intended for credit enhancement purposes
and may be used where (a) the Agency's sustainable development
objectives may best be achieved effectively using credit,
and (b) the risks of default may be reasonably estimated
and managed.
2. DCA is not a separate program but rather a financing
tool to be used in addition to or in lieu of grant funding
where
appropriate. Accordingly, the principles and policies applicable
to the use of development assistance grant funding are presumed
to be equally applicable to DCA funding, unless otherwise
indicated.
3. DCA loan and bond guarantee agreements will be utilized
only when the partner is a non-sovereign entity. No sovereign
loan or bond guarantees are permissible under DCA.
4. DCA shall be a demand-driven initiative, with Operating
Units having primary responsibility for designing, authorizing,
and implementing activities in support of approved strategic
objectives and within Administration and Congressional priorities
for assistance.
5. DCA operations require a clear separation of responsibility
for assessing the developmental soundness and the financial
soundness of each activity, with the later responsibilities
entrusted to a credit review board within the Agency.
6. DCA requires true risk sharing. For loan and bond guarantee
transactions, USAID shall not cover more than 50% of a lender's
risk unless otherwise approves.
7. DCA financing shall not be used unless it is probable
that the transaction would not go forward without it, taking
into consideration whether such financing is available for
the term needed and at a reasonable cost.
8. DCA assistance shall be made at or near market rates.
9. DCA fees shall be based on risk with higher risk activities
being charged higher fees to the extent feasible, taking
into consideration the costs of the development conditionality
imposed on the activity.
10. Currency mismatches are discouraged. Currencies earned
by DCA activities should match the borrowers' liabilities.
11. DCA is intended to produce greater development impact
and increase Agency performance as reported under the Government
Performance and Results Act (GPRA). DCA is not intended
for budget support or to increase the nominal assistance levels
to specific borrowers. Preference will be given to credit
enhancement activities that are of a wholesale versus retail
nature where USAID agrees to support a broad range of developmentally
significant activities that meet defined eligibility requirements.
12. DCA is intended to be used in USAID presence countries
in support of the Agency’s strategic objectives and
in support of Mission-financed policy and institutional reforms.
DCA is also appropriate for use as part of an exit strategy
in countries where USAID assistance is being phased out.
13. DCA is intended to address market imperfections. Activities
eligible for DCA financing shall have positive financial
rates of return.
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