Detailed Information on the
Overseas Private Investment Corporation - Finance Assessment

Improve support of the Credit Reform Act and internal controls by replacing legacy systems / technology.

Ensuring the independence of the Credit Committee and the credit review process

Improving coordination between the program and other government agencies.

Improving public disclosure of the agency's projects and enhancing clarity and quality of reporting from the program staff to the OPIC Board.

Reviewing and monitoring the developmental standards applied to projects to ensure consistent treatment and high standards for all projects.

Measure: Development Matrix Score

Explanation:OPIC has established two analytical tools for measuring the contribution of OPIC-supported projects to economic development.- a Development Matrix for evaluating non-financial projects and a Financial Development Matrix for evaluating financial projects. The Development Matrix assesses the contribution of projects to economic development in 26 areas on the basis of factual information evaluated against established benchmarks. Each project is scored with respect to each parameter, and management uses the overall score to determine whether OPIC should support a project. Each project is scored during the evaluation phase, and in the course of monitoring of implemented projects. The Financial Matrix mirrors the Development Matrix for financial projects by following a similar methodology, but uses 11 indicators more directly relevant to the financial sector. See also Exhibits 5 and 6 of OPIC's Annual Policy Report at http://www.opic.gov/about/reports/documents/fy2007_annual_policy_report.pdf The Development Matrix consists of three parts: core indicators, supplemental indicators, and an adjustment factor for the GNP level of the host country. Each project is given an overall development score on the basis of points awarded for each of these indicators, using objective criteria and factual data spelled out in a directive issued by the Office of Investment Policy. The core indicators cover job creation, training, local procurement, corporate social responsibility and equal employment policy. The supplemental indicators cover job complexity, training abroad, local ownership stake, benefits to local small and medium enterprises, leveraging of other investments and development institutions, public-private partnerships, benefits for women in the workplace, benefits to poor or rural regions, environmental preservation, contribution to developmental infrastructure improvements, projects resulting from or causing government reform, export earnings, economic diversification, fiscal impact, introduction of new product technologies or innovative management practices, marketing and distribution expertise, lower local prices and introduction of new products or services. The financial services matrix is to applied to every proposed project in 11 key areas across three broad categories that objectively quantify its expected contribution to host-country development. Category I covers financial instrument innovation or augmentation, multiplier/spillover effects, corporate governance, and capital mobilization and complementarity - four highly-weighted impacts that should be demonstrated by any project, regardless of sector or the level of economic development within the host country. Category II covers six additional development indicators within such broad areas as sustainability, economic diversification, human capacity building (job creation and training), social effects, macroeconomic and institutional effects, and technology/knowledge transfer. The degree to which projects demonstrate these additional developmental benefits depends significantly on the features of a given project. Category III adjusts for the host country's per capita GNP, reflecting both OPIC's priority to steer investment into the poorest countries and the reality that nations most in need often lack the capacity to support more developmentally sophisticated investments.

Measure: Percentage of on-going OPIC projects monitored for compliance with OPIC's U.S. effects, environmental, and worker rights standards. (Corporate-wide average)

Explanation:

Measure: Additionality (Corporate-wide average)

Explanation:Additionality measures the extent to which OPIC support is necessary to persuade a private investor to pursue an investment that meets OPIC's development objectives. OPIC uses a two part model that utilizes both country and project specific information and rigorous objective criteria to assess additionality. The model uses benchmarks based on published data for each factor and a numeric scoring system to establish an objective measure of additionality. The first part of the model evaluates country and investor-specific factors. Each country has a country score based on five indicators that measure overall country risk, financial sector development, business regulation and market environment, host country institutional quality, and macroeconomic strength.- , factors likely to influence foreign private investors. Investors are evaluated on the basis of their financial strength. The second part of the model assesses project-specific factors such as project size and tenor, availability of private equity, innovation, whether the location is rural or impoverished, and social and financial infrastructure. An OPIC directive describes each of the additionality factors, data sources, and scoring used by analysts in the Office of Investment Policy to score projects.

Is the program purpose clear?

Explanation: OPIC's authorizing language and mission statement clearly state the mission of the OPIC Finance Program is to "'mobilize and facilitate U.S. private capital participation in the economic and social development of less developed countries and areas of the world as well as countries which are transitioning from non-market to market economies." OPIC has made consistent public statements about its development mission, through its website and measurement metrics to highlight the agency's development focus.

Evidence: Section 231 of the Foreign Assistance Act of 1961 (P.L. 87-195), mission statement in GPRA documents, Congressional testimony, public statements, OPIC publications and website.

Does the program address a specific and existing problem, interest, or need?

Explanation: OPIC's Finance Program is designed to address a specific problem: inadequate access to credit (direct loans and loan guaranties) for direct investment projects in the developing world. The willingness of private sector lending institutions to participate in such projects varies by country and even sectors within countries.

Evidence: Companies applying for OPIC financing must represent that they have failed to find adequate financing from private lending institutions.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: OPIC is the primary U.S. government agency that supports private U.S. investment in developing countries. Multilateral lending institutions also provide similar financing, but to companies from all member countries, not just U.S. companies. Private financial institutions also provide similar financing. However, anecdotal evidence suggests that, in certain countries at least, private financing is available for shorter periods (tenor) than OPIC financing, and often not on a project finance basis. The recent extension to OPIC of authority to guarantee in local currencies may create some uncertainty about the types of projects it supports versus the types of projects other federal programs support. To address this concern, OPIC and USAID concluded an MOU to improve coordination between the agencies' guarantee programs.

Evidence: OPIC Finance officers state that private financing often has shorter tenors than comparable OPIC support, and that financing is often not available at all for investments in many developing countries. Sponsor certifications on OPIC finance applications supports these statements. OMB review of OPIC Finance projects, as well as consultations with OPIC and USAID officials suggest some concern about overlap between OPIC and USAID credit programs. OPIC and USAID have concluded an MOU to improve coordination between the agencies' guaranty programs and to leverage USAID's global presence with OPIC's experience in promoting private sector development.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: OPIC's own past customer surveys and an independent study in the 200-2003 time period pointed to a number of areas where OPIC could make improvments; including assessing mission results and additionality, reducing cycle time, streamlining procedures for processing small business applications. These flaws have since been successfully addressed. Going forward, OPIC is currently in the process of completing a new customer survey, and will incorporate the lessons of that survey into OPIC's programs.

Evidence: Analysis of historic Finance activity and OPIC consultations on new products.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: OPIC Finance attempts to concentrate its activities on agency priority initiatives, such as projects involving highly developmental outcomes, U.S. small business, housing, and support of foreign policy initiatives. In certain instances, these priorities have the potential to conflict, thereby resulting in support for a project with a lower developmental outcome than might otherwise be the case. The Administration will review and monitor the development evaluation applied to projects to ensure consistent treatment and high standards. To optimize consistency, OPIC has an ongoing effort to provide greater transparency to public stakeholders and to its board.

Evidence: OPIC Finance Department Operating Plans, OPIC Annual Performance Plan and Performance Report, and OPIC Strategic Plan 2003-2008 discuss the Finance Program priorities.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: OPIC's Finance program has recently established specific, quantifiable long-term goals. These goals are outlined in the agency's Strategic Plan. They include: development impacts, additionality, risk management, a continuing Small Business focus, and increased efficiency such as reduced application processing goals. These elements are reflected in the Finance operating plan.

Evidence: Finance operating plan 2006, OPIC Strategic Plan 2003-2008.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: Since FY 2003, OPIC has worked closely with OMB to develop targets and timeframes for achieving the program's long-term performance goals. The targets and timeframes for each long-term measure under the existing strategic plan are specific and ambitious. As OPIC is nearing the end of its current strategic plan, future plans will highlight OPIC's Development Matrix as an overall guide to development impact. The Development Matrix and the monitoring and evaluation processes supporting it, is a major step towards an ex post basis for evaluating the overall development impact of OPIC's projects. OPIC's next strategic plan to be developed in FY 2007 will use OPIC's experience under this methodology to establish a new set of long run objectives.

Evidence: Finance operating plan 2006, OPIC Strategic Plan 2003-2008.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The Finance program has specific annual performance measures outlined in its Operating Plan and the agency Annual Performance Plan. These measures revolve around OPIC's Development Matrix measure, as well as small business contracts, new contracts in priority areas, measures of additionality, and efficiency measures. OPIC's Development Matrix enables OPIC to judge individual projects on their overall development impact. OPIC makes an estimate at the time that the project is evaluated and approved, and again after the project has been operational. While Matrix scores are an output when they are first made, they are an outcome after the project has been monitored and evaluated after it has become operational. As more projects which have been scored under the Development Matrix methodology reach maturity, OPIC will have the data to demonstrate the developmental outcome of its projects and to establish a metric relating anticipated development benefits to actual outcomes. The first projects that were initially scored on the basis of the Development Matrix are becoming operational and are being monitored and the results show that actual development outcomes significantly exceed anticipated benefits.

Evidence: Finance Department Operating Plan 2006, Annual Performance Plans and Reports, Strategic Plan 2003-2008.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: OPIC has baselines for four of its performance measures. These measures include: average application processing time, number of host country jobs supported, number of monitored on-going projects that meet OPIC's U.S. effects, environment, and worker rights standards, and, the number of small business investors assisted by the Finance program. Performance targets are sufficiently ambitious and were developed in consultation with OMB. The Finance Program has implemented development measures since July 1, 2003.

Evidence: Finance Department Operating Plan, Annual Performance Plans and Reports, Strategic Plan 2003-2008.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: OPIC requires finance recipients to report performance statistics such as employment generated, host country tax receipts from the project, and local procurement. With OMB's help, the Finance Program's application now enables development matrix scoring to measure annual and long-term performance progress.

Evidence: OPIC Application for Finance and OPIC Additionality Checklist (required for all projects prior to closing) contain information to assess how the project relates to OPIC's goals. In addition, projects submit annual self-monitoring questionnaires to report on project activities.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: OPIC was evaluated at a strategic level by the Institute for International Economics in 2003. That evaluation provided guidance which continues to shape OPIC's policy. In brief, the key recommendations were: 1. Change "US Effects" test from job loss to net US economic benefits in order to establish greater OPIC support for outward investment in manufacturing and assembly; 2. Target SME's on the cusp of moving from exporting to investment by working with the Export-Import Bank, and Commerce's Export Assistance Centers and Foreign Commercial Service; 3. Revise eligibility criteria to "significant presence" in the US, in line with US Government Advocacy guidelines; 4. Expand cooperation with private sector, by more aggressively using coinsurance, co-finance and re-insurance; 5A. Increase transparency by moving toward industry best practices of posting information about controversial cases, internal and third party inspection results, and remediation on the OPIC web site; 5B. Abandon practice of making informal negative determinations on environmentally sensitive projects in private so as to avoid disclosure that they do not meet its standards; 6. Greater attentiveness to the risk of bribery and corruption on the part of OPIC-backed entities; 7. Streamline and simplify operations, to reduce burden of reporting and monitoring requirements. These recommendations resulted in the following outcomes: 2,4,6, and 7 were implemented, 1 was deemed politically infeasible, 3 was rejected by Congress, 5a and 5b are being implemented to the extent allowed by law. There have been no substantial changes in OPIC's mission, markets, authorities, or operations since that evaluation.

Evidence: Institute for International Economics "Reforming OPIC for the 21st Century" (May 2003) [http://www.iie.com/publications/pb/pb03-5.pdf]

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: There are three components that integrate OPIC's budget request with performance: a tool to gauge development impact, additionality, and credit underwriting analysis. Development Matrix: OPIC's development matrix provides an analytical model for evaluating individual projects in terms of their potential (ex ante) and actual (ex post) contribution to development. OPIC enhances the effectiveness of the tool by factoring development impact scores of projects into the performance evaluations of individual project officers, departments, as well as the Corporation as a whole. Furthermore, the results of this matrix, and of a related development analysis are incorporated into the budget submission, and separately reported to Congress as required by law. The Development Matrix enables the budget request to present impacts and value added alongside proposed costs. This tool also internally supports the allocation of scarce resources among competing projects. Even in those cases where the Corporation is motivated by foreign policy opportunities, the extent to which OPIC support achieves a valid developmental purpose is made clear and transparent through the development matrix and additionality tools. Credit Underwriting: OPIC has a rigorous method for evaluating the credit quality and financial sustainability of projects, both ex ante and ex post. These methods have a proven track record confirmed by OPIC's remarkable default and recovery history. OPIC is continually improving these tools, most recently through an independent credit committee to evaluate transactions and a process of continuous learning to support underwriting guidelines. Additionality: All proposed projects are evaluated on the basis of an Additionality analysis which measures the extent to which country, sector, and other risks make OPIC support necessary for a proposed investment to go forward. OPIC conducted a review of all projects approved by OPIC's board since FY 2002. This study provides a comprehensive analysis of the current status and impact of these projects. OPIC intends to make this review a regular feature in order to improve its project evaluation criteria, and assessment tools. This review process will help OPIC reshape its resource allocation decisions to achieve the optimal balance of credit quality, additionality, and developmental benefits. Through its development matrix, additionality, credit underwriting tools, and monitoring program, OPIC can demonstrate a track record which clearly relate development impacts to Credit Reform budgetary costs.

Evidence: Development Matrix, 2007 Budget presentation, Board Review of recent projects, Development Reports, Development reporting requirements in law.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: OPIC has made significant improvements in its strategic planning. OPIC now has specific developmental and additionality measures in its Annual Plan and Strategic Plan.

Evidence: OPIC Strategic Plan 2003-2008, OPIC Annual Performance Plans and Reports, and Finance Program Additionality Checklist

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Performance information is collected and tracked throughout the life of the project via a required annual self monitoring questionnaire, and periodic site visits by OPIC personnel. The finance portfolio is regularly monitored by the Finance Program and OPIC's Risk Management unit.

Evidence: OPIC Self-Monitoring Questionaire, Risk Management unit's internal reports (Quarterly Detail Report on Insurance, Quarterly Portfolio Reports, and Annual Claims Reports), OPIC Annual Performance Plans and Reports, and Finance Program Operating Plan.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: OPIC has instituted new individual evaluation criteria to better manage program activities. In the current employee review cycle managers will be evaluated on the development impact of the projects supported. Other factors in the performance evaluation include assessments of efficiency and productivity. The program's performance goals have been communicated to all officers and managers. Each manager is aware that their individual performance evaluation will include a discussion of how their projects performed relative to the program's goals. Program partners such as guaranteed lenders, framework lenders, and other intermediaries, are subject to reporting and risk performance requirements. In addition risk sharing structures often align the incentives of OPIC's partners with OPIC's interest in minimizing risk.

Evidence: Current Individual Performance Plans

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: OPIC obligates funds in a timely manner and ensures that funds are apportioned correctly. OPIC's SF-132s are submitted in a timely manner and approved by OMB as required. OPIC's internal controls include an ongoing internal controls effort, and a department budget management system that tracks all expenditures as they occur.

Evidence: SF-132 Apportionment Requests and Quarterly Obligation Status Reports.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: OPIC has efficiency goals, measured in terms of reduced application processing, or cycle, time. The program's goal is to achieve a 25 percent reduction in cycle time by the end of FY 2008, based on the baseline FY 2002 cycle time. OPIC is also improving the efficiency of its technology program. In FY 2003, OPIC implemented an Investment Review Board process to ensure that all IT funds adequately incorporate agency priorities and business needs. OPIC also plans to rationalize its business management systems to ensure interoperability among all OPIC programs. Beginning in FY 2003, OPIC developed and implemented small business processing procedures, with the goal to process all small business applications within 60 days.

Evidence: OPIC Strategic Plan 2003-2008, OPIC Annual Performance Plans, Reports, and Operating Plan.

Does the program collaborate and coordinate effectively with related programs?

Explanation: OPIC has made significant progress to institutionalize collaboration and to fully leverage existing government resources. OPIC recently entered into a Memorandum of Cooperation with the Foreign Commercial Service (FCS) to facilitate collaboration between OPIC and the FCS on all OPIC-related activites. OPIC has also implemented procedures to ensure that all USAID missions overseas are made aware of OPIC activities. For example, it is now general practice for OPIC Finance officers to meet with USAID mission directors when on travel to Africa. OPIC has concluded an MOU with USAID to ensure program complementarity. Senior staff have met with MCC, USTR, and Export-Import Bank and working groups have emerged to develop complementary approaches. The Finance Program also requires comments from the U.S. Embassy in the host country prior to finalizing any insurance commitment or contract. OPIC and the U.S. Small Business Administration have signed an MOU to enhance OPIC's access to small business-sponsored projects.

Evidence: Memorandum of Cooperation between OPIC and the United States Foreign Commercial Service, MOU between OPIC and USAID, internal process requiring comments from Embassy, and a clearance from the State Department prior to closing any finance transaction.

Does the program use strong financial management practices?

Explanation: OPIC has received a clean audit opinion for every year of its existence, most recently by its independent auditor KPMG LLP on November 11, 2005. The Finance Program requires that, depending on the size of the transaction, all projects be approved by a Credit Committee for financial soundness, as well as by the Investment Committee and OPIC Board of Directors. The credit evaluation function, in particular the Credit Committee, has been made more independent from the Finance program to ensure sound credit decisions on projects. OPIC will continue to ensure the independence of the Credit Committee and the credit review process from the deal originating departments.

Evidence: OPIC Annual Reports contain the clean audit opinions. The Quarterly Political Risk Insurance Detail Report and Monthly OPIC Portfolio Report monitor the health of the insurance portfolio.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: OPIC has taken steps to link the performance of its managers to program strategic goals. OPIC has launched a senior level (SL) staff category, which is similar to the Senior Executive Service program. The SL category is designed to attract and retain highly qualified individuals and provide continuity between Administrations. In August 2002, OPIC conducted training for all managers and supervisors to instruct them in how to develop measurable performance targets that link to department goals for their employees. The Office of Investment Policy at OPIC has also briefed the Insurance Program staff on the new developmental measures. For the agency as a whole, OPIC has recently taken steps to establish an independent audit committee made up of members of the Board of Directors. We are also establishing a Senior Management Council and a Senior Assessment Team to provide oversight and accountability for the agency's internal control over financial reporting.

Evidence: "Developing Performance Standards" training materials, prepared and presented by FPMI Communications, contained specific suggestions and examples for how supervisors and managers can create performance standards and link those standards to finance program goals. The material also discussed how managers can use that information to improve program management.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: The Finance Program is managed on an on-going basis that assures that credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled. OPIC's Portfolio Management unit prepares annual loan reviews and quarterly loan loss reserve and portfolio reporting for top management. OPIC also has a separate Risk Management unit that regularly assesses the health of the finance portfolio. The Finance Program also monitors projects on an individual basis, including site visits when necessary. In FY 2006 an independent internal control assessment was conducted and recommendations were made to OPIC to provide a more optimal control environment and risk management framework. OPIC will use its Senior Management Council to address each of the recommendations from this review.

Evidence: Quarterly Loan Loss Reviews, Annual Loan Reviews, past-due reports (weekly), and project monitoring reports show that OPIC closely manages credit quality.

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: OPIC utilizes OMB-approved credit subsidy models and works continuously with OMB to improve its existing models to better account for project risk. OPIC Finance Program's credit manual enumerates the specific credit procedures and principles for accounting for risk and estimating subsidy. OMB works with OPIC staff on unusual transactions to ensure risk and costs are sufficiently considered.

Evidence: OPIC Credit Manual, auditor reports, and OMB-approved subsidy models.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: OPIC has used its development matrix to quantitatively measure all projects since the beginning of FY 2004. (In FY 2003 OPIC used an earlier, experimental version of the matrix.) OPIC has not supported any projects that scored less than 40 on the scale. The average un-weighted score for finance was 94.5 in FY 2005, as compared to the FY 05 target of 90 and a long-term target of 100. The overall average scores for OPIC as a whole increased from 91.3 in FY2004 to 93.2 in FY 2005. OPIC's FY05 performance demonstrates that OPIC has achieved many of its development goals, as measured by development matrix scores at the point of approval. Recently, OPIC completed a review of projects approved by the current board. While the number of projects that have become operational and were initially scored under the development matrix is limited, the review establishes that the ex post development scores are consistent with scores projected at the point of approval.

Evidence: FY 2005 Performance Report, Board Review of recent projects.

Does the program (including program partners) achieve its annual performance goals?

Explanation: In FY 2005 the Finance Program achieved its annual performance goals, most importantly Finance achieved a Development Matrix score of 94.5 versus the annual target of 90. With respect to OPIC's long term Strategic Plan, OPIC has made substantial progress towards or achieved the strategic goals in its 2003-2008 plan.

Evidence: 2005 Performance Report data, Strategic Plan 2003-2008

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: As noted in the last PART review, OPIC initiated a number of new efficiency measures in FY 2003. For example, OPIC has been able to reduce the cycle time for small business projects. Processing time has decreased from 6.6 months in FY 1999 to 5.7 months in FY 2002, to 2.3 months (68 days) for Small Business Center projects in FY 2005. Of necessity, OPIC has also substantially increased the number of projects it has supported with the same amount of staff, increasing efficiency and cost effectiveness in the process. OPIC continues to work to balance this growth against the risks of its portfolio. More fundamentally, OPIC has applied its Development Matrix measures at the department and individual employee level. As a result, OPIC is allocating its effort and resources on the development impacts of proposed projects. (See also Question 3.4 for a discussion of efficiency measures).

Evidence: Individual Performance Plans, Annual Performance Report and Plans.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: There is no other program in the U.S. government or the private sector that has the same developmental purpose and tools as OPIC.

Evidence:

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: OPIC was independently evaluated at a strategic level by the Institute for International Economics in 2003. The study concluded that OPIC was generally effective but a number of recommendations could enhance OPIC's impact. OPIC implemented the key recommendations insofar as they proved politically feasible with Congress. (For details, see answer to Question 2.6) The study indicated that with its suggested reforms it expected the program to be effective in achieving results. There have been no substantial changes in OPIC's mission, markets, authorities, or operations since that evaluation.

Evidence: Institute for International Economics "Reforming OPIC for the 21st Century" (May 2003) [http://www.iie.com/publications/pb/pb03-5.pdf]