Detailed Information on the
Development Credit Authority Assessment

Working to implement improved financial and accounting management procedures and increase the efficiency and effectiveness of the tool.

Incorporating the findings of its independent evaluations into its project development and monitoring plans to improve program effectiveness.

Measure: Percentage of guaranteed Financial institutions (FIs) that continue to lend without a guarantee or with a lower guarantee in the targeted sector.

Explanation:Of the DCA guarantees that have expired, percent of those FIs that have continued to lend to the targeted sector without, or with a lower, guarantee.

Measure: Percentage of Financial Institutions (FIs) that submit semiannual reports within one month of deadline.

Explanation:Semiannual reports are required to review bank lending and utilization of the guarantees. Reports provided within one month of the deadline allow USAID to bill the bank for utilization fees on a timely basis and reduce the amount of time spent by USAID employees on billing issues.

Measure: Total volume of new capital mobilized (made available) via the DCA guarantee mechanism each fiscal year.

Explanation:Total dollar value of the authorized amount per fiscal year (in $ millions). An increase in capital mobilized will benefit the target sector and country. Future year targets are based on need as well as USAID's capacity to manage deals.

Measure: Number of USAID Missions that have obligated funds for repeat DCA guarantees.

Explanation:Measures the number of USAID Missions around the world that have utilized the DCA guarantee tool once and have decided to use the tool again in the same sector or in a new sector. This measure indicates whether the DCA tool was effective and whether the country is in a position to continue benefiting from this tool.

Measure: Percentage of loans disbursed under active DCA guarantees.

Explanation:Semiannual utilization performance (in %). Utilization of the guarantees is an indicator that the guarantee is resulting in new loans to the target sector.

Measure: Percentage of loans disbursed under a DCA guarantee after five years.

Explanation:The utilization rate of DCA guarantees after five years (e.g., guarantees established in FY 1999 are measured in FY2004). This indicates whether the loan guarantee was utilized over the life of the guarantee, and therefore whether the target sector and country was benefitted over the life of the guarantee. In 2004 through 2007 actuals exceeded targets due to the smaller size of the deals. In 2008 and beyond, it is expected that the larger number and range of deals will result in a 70% acutal utilization rate.

Is the program purpose clear?

Explanation: USAID DCA provides loan guarantees to private sector financial institutions to promote sustained economic growth and poverty reduction in developing countries by increasing private-sector lending to underserved, creditworthy borrowers. In addition, DCA advances sector-specific USAID development objectives, such as improved public health, enhanced infrastructure, or increased access to education.

Evidence: ?? Section 101 of the Foreign Assistance Act of 1961 (P.L. 87-195) ?? Program Justification to OMB ?? Annual Presidential Budget Requests to OMB and subsequent Appropriations Acts ?? State/USAID Strategic Plan 2004-20009 (Economic Prosperity and Security) ?? USAID Office of Development Credit (ODC) Strategy Statement

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

Explanation: DCA guarantees help address the inability of creditworthy non-sovereign borrowers in less developed countries (LDCs) to access credit, which is in part caused by inefficient financial markets (including exorbitant interest rates, excessive collateral requirements, and short repayment terms) and has shown to inhibit long-term economic growth in these countries. DCA partial credit guarantees are designed to share the risks with the LDC financial institutions of lending to these underserved sectors or borrowers, who would have limited access to financing absent the DCA credit enhancement. DCA also leverages private sector resources and fosters public-private partnerships in pursuit of USAID development objectives.

Evidence: ?? DCA Guiding Principles (USAID's internal Automated Directive Service (ADS) section 249.3.1) - addresses key aspects of DCA ?? DCA project packages (referred to internally as "Action Packages"), which are developed individually for each guarantee project, describe: 1.) the "additionality", or added-value of the guarantee in the local credit market and 2.) the development objectives addressed by the guarantee ?? World Bank report "Finance for Growth", 2001 ?? USAID publication, "Designing Loan Guarantees to Spur Growth in Developing Countries 2004

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

Explanation: This is the only program that uses U.S. Government resources to target LDC financial institutions and channel domestic savings in LDCs to local borrowers. In addition, USAID offers the only true 50% risk-sharing guarantee, which is critical in stimulating sustained lending by LDC financial institutions to new sectors. DCA is only used to stimulate financing that would not occur absent the USAID guarantee, so it does not displace nor duplicate private-sector guarantees. If a lender could obtain private sector guarantees on satisfactory terms, such lender would not be eligible for DCA support.

Evidence: ?? DCA Guiding Principles (USAID's internal Automated Directive Service (ADS) section 249.3.1) - addresses key aspects of DCA. ?? DCA project packages contain an analysis of the local credit market and its imperfections as well as "additionality".

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

Explanation: By offering local currency guarantees with true risk-sharing, DCA can leverage substantial private sector financial resources while also facilitating sustained lending to underserved sectors. DCA also leverages human resources of local lenders. Since these lenders bear substantial risk, they have proper incentive to undertake thorough due diligence and prudent oversight of the loan portfolio, thereby reducing the likelihood of defaults. Most DCA projects are directly tied to technical assistance and policy reform that address some of the root causes for the lack of credit in developing countries, and this helps ensure that DCA projects will have a powerful "demonstration" effect on LDC financial institutions. This technical assistance coupled with in-country management support from Missions ensures DCA effectiveness.

Evidence: Each DCA project package contains project description and justification in accordance with DCA guiding principles set forth in Ads 249.3.1. Monitoring plans for each DCA project also demonstrate in-country guarantee implementation resources

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

Explanation: The program is primarily targeted to lenders, but the intended beneficiaries are also the borrowers. DCA guarantees create the potential for significant benefits for lenders and borrowers, as well as sustainable access to capital after the guarantee expires. Borrowers that were previously hindered by a lack of access to credit can grow their businesses because of DCA supported loans. This leads to higher economic growth, increased employment and poverty reduction. DCA projects are identified by USAID missions to ensure that the program addresses market imperfections in the local credit environment. "

Evidence: ?? DCA Congressional Budget Justification - explains the sectors targeted by USAID ?? Mission Annual Reports - explains using DCA as tool to achieve strategic objectives ?? DCA project packages contain program justification and an analysis of the local credit market and its imperfections

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: The USAID Office of Development Credit (ODC) - the office that manages the DCA program - has established long-term performance measures which also have annual components, that reflect the purpose of the DCA authority. The primary measure is the extent to which DCA mobilizes private capital to help achieve USAID development objectives, including increased economic growth and poverty reduction. Another measure is the extent to which guarantees facilitate sustained credit activities.

Evidence: ?? ODC Strategic Framework ?? ODC Performance Measurement Reports

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

Explanation: ODC has established specific targets and timeframes for its long-term performance goals. For example, the level of utilization (i.e. aggregate amount of lending) for each DCA facility (target/timeframe is 70% utilization within five years). Another ambitious target relates to a "demonstration effect", which assesses lending that occurs following a DCA guarantee expiration.

Evidence: ?? ODC Strategic Framework ?? ODC Performance Measurement Reports

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: ODC has established three annual performance goals. These goals relate to: (i) the volume of lending leveraged by DCA, (ii) the level of utilization of DCA facilities, and (iii) the number of Missions implementing their first DCA guarantee or a guarantee in a new sector.

Evidence: ?? ODC Strategic Framework ?? ODC Performance Measurement Reports ?? Staff Annual Evaluation Forms (AEFs)

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

Explanation: ODC has established ambitious targets for its annual performance measures set forth in 2.3 that are developed and reviewed annually and/or semiannually based on recent performance. For example, the level of utilization at the end of FY2004 was 26%. Targets for the first half of FY2005 were set at 29%.

Evidence: ?? ODC Strategic Framework ?? ODC Performance Measurement Reports

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: The primary partners are the USAID Missions and the financial institutions that receive the guarantees. Missions commit to work toward the annual and long-term goals because increased utilization as well as a "demonstration effect" will help them their achieve Strategic Objectives. Missions commit to a monitoring plan and undertake other efforts to promote lending, which often includes technical assistance for borrowers and/or lenders. The guaranteed lenders have a financial incentive to undertake the new types of loans supported by DCA because they pay an upfront, non-refundable origination fee to USAID based on the amount of the DCA facility. Also, they share 50% of the risk of loss on the guaranteed loans, so they have a strong financial incentive to exercise prudent oversight of the DCA supported loans. This increases the likelihood of profitable lending, and profitable lending is necessary for creating the "demonstration effect."

Evidence: ?? DCA project packages describe how Missions agree to a monitoring plan and how technical assistance complements the guarantee. ?? Performance Measures Reports (Mission Annual Reports) ?? Partner financial institutions pay the origination fee. ?? Credit Management System (CMS) tracks the payment of fees and the level of utilization for each guarantee. ?? Some guaranteed lenders provide commitments for semiannual utilization targets."

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: Missions conduct independent annual performance reviews and project evaluations, which relate to DCA effectiveness. CMS data provide a quantitative assessment of the level of utilization and the aggregate lending, as well as an Annual Data Questionnaire (ADQ) to assess the impact of the guarantees. A contractor has been retained to develop an ongoing survey methodology for an overall DCA impact evaluation. The USAID Inspector General (IG) is conducting a worldwide audit of DCA activities, including at least seven Mission-based audits. The audit seeks to determine whether the intended results were achieved through the use of the DCA guarantee.

Evidence: ?? CMS performance and Annual data questionnairs (ADQ) data ?? Project evaluation files (refer to performance measure on "demonstration effect") ?? USAID mission Annual Report database ?? IG audit reports ?? DCA Impact Assessment surveys

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: The transfer authority under which DCA operates is partially tied to historical information in terms of the level of new obligations and utilization. It is also tied to the projected demand for new guarantees. The Administrative Expense budget for DCA is tied to size of the portfolio and the extent to which teams are meeting management performance goals.

Evidence: ?? Annual Presidential Budget Request to OMB

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

Explanation: ODC has undertaken several measures to address strategic planning deficiencies. CMS was developed in FY2003 to track key performance data, including utilization rates and aggregate disbursements. The ODC Strategic Framework was developed in FY2004 to articulate critical objectives for DCA. Performance measures toward these objectives were also established in FY2004 to identify key benchmarks for assessing performance.

Evidence: ?? Credit Managment System (CMS) ?? ODC Strategic Framework ?? Performance Measure Reports

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: The Office of Development Credit (ODC) collects, analyzes and reports performance data on loans/borrowers and lenders through its Internet-based Credit Management System (CMS) and its Performance Measures Reports. CMS data serve as the primary source of DCA portfolio performance data for Missions and FM/LM. ODC staff meet monthly to discuss CMS reports and to resolve any problems affecting guarantee utilization. ODC contacts partner banks on a semiannual or annual basis and collects audited financial statements from these institutions for the annual subsidy reestimate process. To obtain more qualitative information on DCA impact, ODC conducts an annual survey through CMS and is developing a DCA Impact Assessment Survey. Lastly, DCA Biennial Reviews summarize guarantee and partner bank performance and further investigate any unresolved issues.

Evidence: ?? CMS data and reports- borrower, lender, cohorts ?? Performance Measures Reports ?? Calling plan Template ?? Subsidy reestimate (bank financial statements) ?? Biennial review ?? Monitoring Plan ?? Annual Data Questionnaire (ADQ)

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: ODC staff and its contractors are required to ensure that USAID credit guarantees are properly developed and monitored, which include estimating and updating the expected cost of the guarantees by cohort. ODC performance goals have been incorporated in the AEFs. The CRB in its oversight role approve subsidy costs for each guarantee and review portfolio performance annually. The monitoring contractor submits monthly invoices that are carefully reviewed by the contract's Cognizant Technical Officer to ensure costs are within the estimated scope of work's budget. Partner banks are monitored on a semiannual basis for evidence of DCA loan portfolio performance. DCA Biennial Reviews also analyze a partner bank's overall performance as compared to its peer institutions. ODC with Mission support hold partner banks accountable for reporting and fee payments as stipulated in guarantee agreements, and use banks' projections to develop and review utilization targets.

Evidence: ?? Annual Evaluation Forms (AEFs) include office performance measures. ?? Monthly portfolio review meetings keep ODC staff and contractors accountable for required follow-up actions on new and unresolved issues. ?? Mission annual report that relate DCA to Strategic Objective achievements ?? Biennial Reviews ?? CTO files of invoices processed for monitoring contractor ?? Subsidy Reestimate Files

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

Explanation: ODC coordinates the funding transfer process in order to sign/obligate DCA guarantees. ODC also guides USAID missions and legal counsel to ensure the required legal documents are prepared and that the partner FIs are properly briefed to avoid unnecessary delays in the obligation process. Once funds are obligated, ODC manages the portfolio of guarantees to ensure the guarantees are utilized (and therefore, that the obligations are expended) through frequent communications with Missions and FIs. In conjunction with the USAID Credit Budget Officer and USAID regional bureaus, ODC is working to monitor unobligated and recovered funds for use in future credit projects to minimize the loss of funds through expiration of authority.

Evidence: ?? 15-step funds obligation process ?? Obligation progress spreadsheet ?? ODC Performance Measure #7: Percentage of approved projects obligated in the same fiscal year ?? Following obligation, the Office utilizes several tools to ensure funds are properly expended: scheduled communications with Missions/FIs, portfolio review meetings, and Biennial Reviews. ?? The USAID Credit Budget Officer monitors the utilization of transfer authority and provides ODC with an annual report showing how much has been utilized and how much is available for carryover.

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: USAID Missions seek efficient use of budget funds, and DCA is a manner in which they can leverage Government funds to mobilize private sector resources toward income-generating activities. Banks, with 50% of their funds at risk, have proper incentives to minimize potential losses, which in turn results in effective use of DCA guaranteed loans and minimizes DCA claim payments. In addition, ODC has established procedures to track annual efficiency and effectiveness measures. The introduction of CMS has improved portfolio management productivity and efficiency.

Evidence: ?? ODC Performance Measures -- annual targets represent incremental improvements from the current performance baseline to the long-term target. ?? CMS has eliminated substantial costs and duplication of data entry effort by the transfer of most data entry to FIs, which is then reviewed by USAID. CMS, which represents the most significant technological improvement for the Office, allows for decentralized access to portfolio data, also reducing a bottleneck in requesting data reports/analyses from a single, centralized source.

Does the program collaborate and coordinate effectively with related programs?

Explanation: ODC collaborates and coordinates regularly with other related external programs, particularly OPIC financial activities and programs of multilateral and bilateral institutions, such as the International Finance Corporation (IFC), UK Department for International Development (DFID), the Asian Development Bank (ADB), Japan Bank for International Cooperation (JBIC) and others. USAID and OPIC personnel are in regular contact about prospective projects and exchange information routinely. An MOU has been signed to formalize these arrangements. ODC regularly interacts with IFC on various initiatives, including projects in Indonesia and Cambodia. The rationale behind DCA and partial guarantees of local currency loans has been shared by ODC with DFID, ADB and other donors. ODC also promotes guarantees that support: 1.) Presidential Initiatives, such as increased access to water and famine prevention, 2.) Global Development Alliance (GDA) public-private partnerships and 3.) the Middle East Partnership Initiative (MEPI). Lastly, DCA by its transfer authority nature continually collaborates with USAID Mission programs.

Evidence: "External ?? Collaborative projects with IFC, JBIC and other donors ?? Memorandum of Understanding (MOU) with OPIC ?? ODC staff has met with DFID and ADB about creating local currency guaranty programs. DFID has subsequently launched Guarantco, a local currency guaranty facility. ADB is also contemplating local currency guarantees Internal ?? MEPI funds used to support DCA guarantee in Morocco. ?? Guarantees established in Ethiopia to support agriculture cooperatives. ?? Guarantees established in Egypt, Morocco, India, South Africa, Bosnia to support access to water.

Does the program use strong financial management practices?

Explanation: USAID does not meet government-wide financial control and accounting standards, as evidenced by the score on their financial management scorecard. However, ODC does demonstrate effective financial management practices through its risk assessment of all DCA facilities. The ODC risk assessment team follows a handbook reviewed by OMB and conducts internal peer reviews to ensure accurate subsidy cost estimates. Additionally, portfolio management incorporates strong financial management practices through: CMS, monthly portfolio review meetings, efficiency performance measures, claim review process, annual Mission site visits, DCA Biennial Reviews, and coordination with USAID's Financial Management/Loans Management (FM/LM) for proper DCA accounting.

Evidence: ?? Report of Credit Assessment Handbook Independent review ?? FY02 IG audit recommendations for effective monitoring ?? Claim payment audit/internal review triggers ?? Clean audit opinion of financial statements ?? Monitoring Plan -- Operations Manual

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

Explanation: In early FY2004, ODC conducted office retreats to improve management deficiencies. AEFs for individual staff members include performance measures that are tied to the ODC performance measures. Monthly portfolio review meetings begun in FY2003 using CMS reports are also an effective management tool. ODC has also worked closely with the USAID Inspector General (IG) to address audit recommendations and incorporate lessons learned from IG audits. ODC has more precisely articulated roles and responsibilities for all personnel involved in DCA as well as procedures for implementing DCA activities in the FY2004-updated DCA Operations Manual. ODC continually provides training of the USAID CFO and the Credit Review Board (CRB) to ensure proper oversight and an effective 'checks and balances' role. In addition, ODC offers DCA training for internal USAID mission and bureau colleagues several times per year. Lastly, ODC management has attended leadership training to improve management skills.

Evidence: ?? ODC Strategic Framework ?? Annual Evaluation Form and work-plans ?? Minutes of the Portfolio Review meetings ?? DCA Operations Manual ?? Training for two key leaders of the Office - Office Director and Credit Risk Supervisory Officer ?? Training sessions for CRB, bureaus, missions "

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: ODC Portfolio Management has established procedures to ensure ongoing effective program management. CMS data are monitored regularly. ODC coordinates all monitoring activities with the Mission, which provides on-site field support. The DCA Operations Manual detail all aspects of how DCA is managed - e.g., monthly portfolio review meetings, calling plans, Biennial Reviews, annual subsidy reestimates, semiannual subsidy outlays, and claim payment processing.

Evidence: ?? Monthly Portfolio Review meetings ?? CMS reports ?? DCA Operations Manual ?? Semi-annual subsidy outlays ?? Biennial reviews

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

Explanation: ODC uses OMB-approved credit models and guidelines, which are consistent with Federal credit regulations. Each guarantee is independently approved or rejected by the Agency's Chief Financial Officer (CFO) via the Credit Review Board's (CRB) recommendation, whose sole mandate is to ensure compliance with federal credit regulations. Independent recommendations on credit risk and subsidy cost are provided to the CRB by a dedicated ODC risk assessment team. The risk assessment team operates under credit guidelines and procedures established in the USAID Credit Handbook??which has been and will continue to be independently reviewed by outside parties. On a regular basis, ODC meets with other practitioners to discuss best practices in credit risk measurement and management. These discussions and the frequent review of relevant literature lead to frequent updates to the ODC credit guidelines as promulgated in the USAID Credit Handbook.

Evidence: ?? USAID Credit Risk Assessment Handbook ?? Project specific risk assessments ?? Annual subsidy re-estimate ?? Credit Review Board meeting minutes ?? Loan loss data and claims paid as a percent of subsidy

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

Explanation: In F Y2005, ODC achieved its long term goal of increasing the utilization rates of the DCA guarantees. In addition, DCA's financial institutions have continued to lend to the targeted sectors without, or with lower guarantee coverage. Finally, DCA has continued to expand with 11 missions developing guarantees in innovative new sectors.

Evidence: Performance Measures Reports based on FY2005 results.

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

Explanation: In FY 2005, ODC had marginal success in achieving its annual performance targets. In FY 2006, ODC plans to to reassess its implementation strategy to better meet DCA's annual performance goals.

Evidence: Performance Measures Reports based on FY2005 results.

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

Explanation: ODC also has achieved measures that demonstrate improvements in efficiencies and cost effectiveness. Compared to traditional grants, DCA guarantees represent a more effective use of US Government funds leveraging private sector resources. By FY2004, DCA had established guarantees for $856 million at a subsidy cost of $28 million, which represents leverage of 30:1. ODC has also instituted several reforms in FY2004 for improved resource effectiveness. For example, employee work objectives are tied to the performance measure framework. Lastly, ODC's portfolio management function has become much more cost efficient through the introduction of CMS, which resulted in reduced redundant data entry activities. Furthermore, CMS has been an integral tool in improving efficiency measures (see #3.4) for portfolio management performance on bank reporting and fee payments.

Evidence: Leverage results are exhibited in FY2004 Year-in-Review report; Employee work objectives and annual evaluations reflect contributions to office-wide performance measures; CMS supports the management of 114 DCA guarantees and 25 Micro Small Enterprise Development (MSED) guarantees without the need to increase contractor support; the previous database system, which managed approximately 40 MSED guarantees involved the same amount of contracted staff due to data entry activities.

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

Explanation: No other US Government program has a similar purpose and goal - mobilizing local private sector credit toward development objectives in LDCs. One of the requirements of a DCA guarantee is that it does not displace or crowd out private sector interest and involvement in the type of project receiving capital with DCA support. In this regard, we are assured that there are no private programs with the same purpose/goal in relation to DCA guarantees.

Evidence: N/A

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

Explanation: In early FY2005, the USAID IG office began an extensive audit of DCA to be conducted through FY2006 on the effectivess of DCA guarantees in terms of its developmental impact. Insights from this audit will be incorporated into DCA operations. Similarly, ODC has recently begun a process of a DCA Impact Assessment survey tool for participating banks, Missions and in-country technical assistance providers. ADQs conducted through CMS will also provide some independent feedback from partner banks. ODC will continue to use both survey tools on an ongoing basis to frequently evaluate DCA results. In addition, the FY2003 USAID IG audit of USAID credit in the Philippines indicated that the office was not properly performing its financial management responsibilities regarding claims processing. Based on this review, ODC implemented several portfolio monitoring improvements.

Evidence: The IG audit in the Philippines of excess claims paid out to partner FIs pointed out how the Office can incorporate an auditor's perspective in cases where fraud or non-compliance is suspected. ODC gained insights into how to conduct further investigations. In addition, ODC implemented overarching portfolio monitoring guidelines, which represent "lessons learned" from this experience, e.g., three criteria of claims triggers for further investigation or an internal audit and the need to conduct spot checks of bank loan files to ensure integrity of data reported to USAID through CMS.