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DCA Highlights
Listed below are Development Credit Authority highlights, special programs and accomplishments in various countries grouped within the following areas:
Innovative Uses of USAID Credit Guarantees
USAID has used the Development Credit Authority to creatively address development needs.
- Investment Capital for Microfinance, Global
With a DCA guarantee, Deutsche Bank created a cross-border debt financing facility. The Global Commercial Microfinance Consortium targets commercial microfinance institutions (MFIs) by raising private debt and equity that is then invested in MFIs around the world. Through Deutsche Bank’s Consortium, MFIs will have greater access to better financing terms that can be passed to their microenterprise clients. The DCA guarantee covers up to $10 million of the total portfolio of $80.6 million.
- Commercial Paper Issuance, Armenia
In the first commercial paper issuance in Armenia, USAID provided a portable guarantee commitment to Cascade Credit to cover the issuance of $12 million in commercial paper over a three-year period. The DCA guarantee will help develop and expand capital markets in Armenia and promote financial intermediation through several specialized financial institutions. The proceeds of the issuance will primarily be used for trade finance loans to expand the export sector.
- Slum Redevelopment, India
With a DCA guarantee, USAID is mobilizing $5.75 million for the completion of a major slum redevelopment project in Mumbai. The project will provide approximately 2,470 housing units for an estimated 10,000 relocated and 2,500 in-situ slum dwellers.
Investing In The Environment Through Credit Guarantees
DCA guarantees can be used to promote clean energy investments that reduce greenhouse gas emissions.
- Renewable Energy
In 2005, USAID designed a 10-year, $20 million portfolio guarantee for Yes Bank in India to promote private-sector led project financing to small and medium enterprises (SMEs) engaged in small scale renewable energy, efficient energy usage, and water conservation projects. The guarantee increases energy production through the use of solar, biomass, hydro, and wind generated power, and promotes the use of energy efficient products and water conservation management. One Indian company used a partially guaranteed loan of approximately $900,000 to establish a wind energy project.
- Clean Production and Energy Efficiency
In Central America, USAID provided a 7-year, $10 million guarantee to four banks throughout the region to provide capital for small and medium enterprises (SMEs) that introduce, upgrade or retrofit industrial, agro-business and services processes. The SMEs utilize cleaner production practices, certification processes, and environmental management systems with assistance provided by local Cleaner Production Centers. The Cleaner Production Center network and participation program emphasizes voluntary business compliance and complements USAID’s technical assistance to support clean energy.
- Greenhouse Gas Reductions
USAID/Bulgaria designed a $10 million loan portfolio guarantee to address energy inefficiency. The guarantee has been used by United Bulgarian Bank (UBB) to lend to municipalities and businesses, which use the loans to make energy efficiency upgrades to buildings and equipment. Over 12 months the electricity savings from the upgrades was over 37,000 mega watts, and fuel and thermal savings was over 1.4 million giga joule (GJ). It is projected that over 12 years the reduction in greenhouse gas emissions resulting from the upgrades financed will be 530,000 tons.
- Environmental Infrastructure
USAID/South Africa supported the municipality of Johannesburg with a portable guarantee that was used to secure a $25 million loan from Absa Bank. The municipality used the private financing to invest in water infrastructure, solid waste disposal, and electricity to underserved areas. The debt was successfully pre-paid, demonstrating that municipal investment in environmental infrastructure is commercially viable.
Development Credit Authority and Housing Finance
USAID uses credit guarantees to improve the availability and quality of housing around the world.
- Nigeria
In Nigeria, a credit guarantee developed in 2006 is being used to support the purchase of homes by low and middle income households in urban areas. The program complements the Government of Nigeria’s efforts to address the high housing deficit, which, if unaddressed, will lead to a housing crisis by 2020. In its first year with the guarantee, 21 families have purchased homes, with many more expected by the time the guarantee ends in 2018.
- South Africa
USAID/South Africa provided two partial loan guarantees on loans from Old Mutual Investment Group to two Special Purpose Vehicles (SPVs). One SPV will use the proceeds of the loan to finance the development of a mixed use affordable residential development. The other SPV will be used to expand the housing portfolio of a financial services company called Real People to increase the availability of rental and mortgage products throughout South Africa.
- Morocco
Through a portable guarantee to Al Amana, a Moroccan microfinance institution, USAID is addressing the need for housing finance products targeted to the lower end of the income spectrum. This guarantee complements the Moroccan government’s programs to assist poor households obtain shelter and to ensure that they receive basic services, especially sanitation and other utilities.
- India
In 2006, USAID/India provided a partial guarantee on a loan that ICICI Bank issued to the Society for the Promotion of Area Resource Centers (SPARC) for the completion of a major slum redevelopment project in Mumbai. With the guarantee, SPARC was able to finance a slum upgrading project that provided approximately 2,470 homes for an estimated 10,000 relocated and 2,500 in-situ slum dwellers. In providing the guarantee, USAID helped demonstrate the creditworthiness of SPARC and the viability of lending for slum upgrading. SPARC has secured a subsequent loan without additional USAID support.
- Romania
To mobilize access to long-term financing for home purchases, USAID structured a wholesale guarantee that helped establish a primary and secondary mortgage market in Romania. With a guarantee from USAID in 2003, the Romanian Enterprise Fund (RAEF) was able to secure a ten year loan from Raiffeisen Bank Romania. RAEF lent this financing to Domenia Credit, a specialized mortgage finance company. The proceeds of this loan were used by Domenia to finance mortgage loans and for the purchase of primary residences, establishing the company as an industry leader.
Deepening Microfinance Through Credit Guarantees
Microfinance harnesses capital among the poor and creates opportunities for savings and borrowing. USAID uses the Development Credit Authority (DCA) to support microfinance product innovation and institution strengthening around the world.
- Capital Markets
USAID assists microfinance institutions (MFIs) all over the world to grow and become more competitive and sustainable sources of capital. USAID assisted MiBanco in issuing its first bond in 2002. By providing a guarantee as a credit enhancement, MiBanco received an investment grade rating that enabled pension funds to purchase its paper. Since the sale of its first bond, MiBanco has issued and sold several more bonds without USAID assistance.
- Disaster Response
In response to the devastating tsunami in 2004, USAID designed a DCA guarantee to mobilize lending to micro and small enterprises in Indonesia. The guarantee complements grant assistance by facilitating private lending in local currency as a sustainable source for new investment and working capital needs of tsunami affected businesses. To date, approximately 8000 borrowers have accessed microloans to invest in the recovery of their businesses.
- Agriculture
Unión Progreso is a regulated and supervised rural credit union in Mexico that provides financing to micro and small agribusinesses operating in rural communities. A DCA guarantee developed in 2001 facilitated a commercial loan to Unión Progreso to increase its liquidity and lower its borrowing costs. Unión Progreso passed these benefits to its clients by expanding its lending activities and offering longer-term financial products.
- Infrastructure
Zakoura, a Moroccan MFI, works in both rural and urban areas to provide credit to the most underprivileged population. USAID provided a DCA guarantee to increase Zakoura’s liquidity so that it could introduce a new mortgage product. MFIs’ mortgage products frequently support incremental building of shelters, as low-income families upgrade and build-on to their homes as resources permit.
- Alternative Development
USAID used credit guarantees to support the eradication of illicit coca growing in Peru by helping to increase the availability of financial resources for alternative livelihoods. Through technical assistance USAID organized and facilitated buyer-producer contracts. The DCA guarantees with local financial institutions encourage working capital loans to the crop producers that have these contracts.
Development Credit Authority and Water Finance
USAID has structured Development Credit Authority (DCA) guarantees to improve the availability of affordable water and sanitation services around the world.
- India
In India, two DCA bond guarantees have mobilized a total of $29 million for improved water services. USAID guaranteed the issuance of two municipal bonds in India (Tamil Nadu in 2002 and Karnataka in 2003) to raise capital to invest in sanitation and water supply for low-income neighborhoods. The bonds were resold on the secondary market, and resulted in strengthened capital markets and water services in India.
- Bulgaria
In Bulgaria in 2005, a DCA guarantee was developed to introduce municipal lending, following on recent legislation giving municipalities the ability to obtain financing. By using a DCA guarantee, USAID was able to capitalize on these recent legislative changes to support better municipal management. The municipality of Montana, for example, used its loan to rehabilitate its water and sewage systems, providing improved services for residents.
- Serbia
USAID/Serbia used the DCA in 2005 to mobilize loans to municipalities for infrastructure improvements. This guarantee has resulted in a number of communities with improved capacity to finance necessary capital investments. One such loan was a € 1.4 million financing to the Municipality of Smederevo, which used the proceeds to install underground pipes that link the municipality to the water supply system.
- Philippines
The Philippine Water Revolving Fund (PWRF) is a joint effort under the Clean Water for People Initiative between the United States and Japan to attract private investment in water and sanitation infrastructure. A DCA loan portfolio guarantee for $37.5 million was designed to re-guarantee loans covered by a local guarantor, the Local Government Unit Guarantee Corporation (LGUGC) aimed at water investments.
- Kenya
In 2008, USAID/Kenya developed a partial credit guarantee designed to increase lending to community-managed small water enterprises. This initiative will increase access to water by reducing the collateral requirements of potential borrowers. In working with partners such as the Government of Kenya, and the World Bank’s Water and Sanitation Program and Global Partnership on Output-Based Aid, this guarantee will increase the availability of water to those who are underserved by the market.
- Albania
In 2008, a multi-bank DCA guarantee mobilized $13.5 million to help Albanian municipalities access commercial credit for infrastructure projects. This guarantee complemented recent decentralization that gave local governments more authority for municipal management. These projects will allow for infrastructure investments including improving sewer and wastewater treatment, and better water supply.
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