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Note 6. Direct Loan and Loan Guarantees and Loans and Liabilities for Loan Guarantees

USAID operates the following loan and/or loan guarantee programs:

• Direct Loan Program (Direct Loan)
• Urban and Environmental Program (UE)
• Micro and Small Enterprise Development Program (MSED)
• Israel Loan Guarantee Program (Israel Loan)
• Development Credit Authority Program (DCA)
• Egypt Loan Guarantee Program

Direct loans resulting from obligations made prior to FY 1992 are reported net of allowance for estimated uncollectible loans. Estimated losses from defaults on loan guarantees resulting from obligations made prior to FY 1992 are reported as a liability.

The Credit Reform Act of 1990 prescribes an alternative method of accounting for direct loans and guarantees resulting from obligations made after FY 1991. Subsidy cost, which is the net present value of the cash flows (i.e. interest rates, interest supplements, estimated defaults, fees, and other cash flows) associated with direct loans and guarantees, is required by the Act to be recognized as an expense in the year in which the direct loan or guarantee is disbursed. Subsidy cost is calculated by agency program offices prior to obligation using a model prescribed by the Office of Management and Budget (OMB). Subsidy relating to existing loans and guarantees is generally required to be reestimated on an annual basis to adjust for changes in risk and interest rate assumptions. Direct loans are reported net of an allowance for this subsidy cost (allowance for subsidy). The subsidy costs associated with loan guarantees are reported as loan guarantee liability.

An analysis of loans receivable, loan guarantees, liability for loan guarantees, and the nature and amounts of the subsidy costs associated with the loans and loan guarantees are provided in the following sections.

The following net loan receivable amounts are not the same as the proceeds that USAID would expect to receive from selling its loans. Actual proceeds may be higher or lower depending on the borrower and the status of the loan.

Direct Loans

Defaulted Guaranteed Loans from Post-1991 Guarantees

In FY 2007, the UE Program had $3.6 million in defaults on payments.

In FY 2006, the UE Program had $3.2 million in defaults on payments.

Guaranteed Loans Outstanding:

Subsidy Expense for Loan Guarantees by Program and Component:

Subsidy Rates for Loan Guarantees by Program and Component:

Schedule for Reconciling Loan Guarantee Liability Balances
(Dollars in Thousands)

(Post-1991 Loan Guarantees)	DCA	MSED	UE	Israel	Egypt	Total
2007
Beginning Balance, Changes, and Ending Balance
Beginning Balance of the Loan Guarantee Liability	$10,812	$(2,152)	$155,428	$1,169,364	$170,191	$1,503,643
Add: Subsidy Expense for Guaranteed Loans Disbursed During the Reporting Years by Component:
(A) Interest Supplement Costs	–	–	–	–	–	–
(B) Default Costs (Net of Recoveries)	–	–	–	–	–	–
(C) Fees and Other Collections	–	–	–	–	–	–
(D) Other Subsidy Costs	6,935	–	–	–	–	6,935
Total of the Above Subsidy Expense Components	$6,935	$–	$–	$–	$–	$6,935
Adjustments:
(A) Loan Guarantee Modifications	–	–	–	–	–	–
(B) Fees Received	1,043	45	2,069	–	–	3,157
(C) Interest Supplements Paid	–	–	–	–	–	–
(D) Foreclosed Property and Loans Acquired	–	–	–	–	–	–
(E) Claim Payments to Lenders	(1,442)	(420)	(3,590)	–	–	(5,452)
(F) Interest Accumulation on the Liability Balance	3,088	460	6,116	73,504	7,301	90,469
(G) Other	(5,819)	(3,740)	13,901	–	–	4,342
Ending Balance of the Loan Guarantee Liability Before Reestimates	$14,617	$(5,807)	$173,924	$1,242,868	$177,492	$1,603,094
Add or Subtract Subsidy Reestimates by Component:
(A) Interest Rate Reestimate	–	–	–	–	–	–
(B) Technical/Default Reestimate	–	1,923	(35,722)	143,305	(14,062)	95,444
Total of the Above Reestimate Components	$–	$1,923	$(35,722)	$143,305	$(14,062)	$95,444
Ending Balance of the Loan Guarantee Liability	$14,617	$(3,884)	$138,202	$1,386,173	$163,430	$1,698,538
2006
Beginning Balance, Changes, and Ending Balance
Beginning Balance of the Loan Guarantee Liability	$4,610	$(1,811)	$149,557	$1,066,734	$148,051	$1,367,141
Add: Subsidy Expense for Guaranteed Loans Disbursed During the Reporting Years by Component:
(A) Interest Supplement Costs	–	–	–	–	–	–
(B) Default Costs (Net of Recoveries)	–	–	–	–	–	–
(C) Fees and Other Collections	–	–	–	–	–	–
(D) Other Subsidy Costs	5,336	86	–	–	–	5,422
Total of the Above Subsidy Expense Components	$5,336	$86	$–	$–	$–	$5,422
Adjustments:
(A) Loan Guarantee Modifications	–	–	–	–	–	–
(B) Fees Received	847	55	2,334	–	–	3,236
(C) Interest Supplements Paid	–	–	–	–	–	–
(D) Foreclosed Property and Loans Acquired	–	–	–	–	–	–
(E) Claim Payments to Lenders	(168)	(475)	(3,254)	–	–	(3,897)
(F) Interest Accumulation on the Liability Balance	879	–	8,784	48,272	6,625	64,560
(G) Other	(692)	(7)	18,604	–	–	17,905
Ending Balance of the Loan Guarantee Liability Before Reestimates	$10,812	$(2,152)	$176,025	$1,115,006	$154,676	$1,454,367
Add or Subtract Subsidy Reestimates by Component:
(A) Interest Rate Reestimate	–	–	–	–	–	–
(B) Technical/Default Reestimate	–	–	(20,597)	54,358	15,515	49,276
Total of the Above Reestimate Components	$–	$–	$(20,597)	$54,358	$15,515	$49,276
Ending Balance of the Loan Guarantee Liability	$10,812	$(2,152)	$155,428	$1,169,364	$170,191	$1,503,643

Other Information

1. Allowance for Loss for Liquidating account (pre-Credit Reform Act) receivables have been calculated in accordance with OMB guidance using a present value method which assigns risk ratings to receivables based upon the country of debtor. Ten countries are in violation of Section 620q of the Foreign Assistance Act (FAA), owing $31.2 million that is more than six months delinquent. Nine countries are in violation of the Brooke-Alexander Amendment to the Foreign Operations Export Financing and Related Programs Appropriations Act, owing $440.7 million that is more than one year delinquent. Outstanding direct loans receivable for countries in violation of Section 620q totaled $21.4 million. Outstanding direct loans receivable for countries in violation of the Brooke Amendment totaled $401.7 million.
2. The MSED Liquidating Account general ledger has a loan receivable balance of $29 thousand. This includes a loan pending closure. This loan is being carried at 100 percent bad debt allowance.

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