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Development Credit Authority

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The U.S. Agency for International Development works with the private sector in developing countries to expand investment in local development activities. Since 1999, USAID’s field offices, or “missions” have used the Development Credit Authority (DCA) to facilitate public-private partnerships and to encourage financial institutions to lend to creditworthy but underserved borrowers. Over this time, USAID has provided more than 200 partial credit loan and bond guarantees that have enabled approximately $1.6 billion of private capital to be lent in more than 60 countries.
 
DCA is a tool that USAID missions use to stimulate lending through the use of partial credit guarantees. These guarantees, which cover up to 50% of defaults on loans made by private financial institutions, reduce the risk associated with lending to new sectors or new borrowers. As well, they use the wealth that already exists in developing countries --money held in local financial institutions-- to stimulate broad-based sustainable development by increasing the flow of credit to areas and activities that need it most, including specific sectors targeted by USAID.
 
Credit assistance is particularly useful in areas such as micro and small enterprise, privatization of public services, infrastructure, efficient and renewable energy, and climate change. Credit projects offer several distinct and very attractive advantages over other forms of assistance.
 

Benefits of DCA

  • Promotes private-sector investment - To encourage financial institutions to lend the untapped private capital for developmentally beneficial projects, credit guarantees can be used to cover part of the risk on new loans where financing had been unavailable or inaccessible.
  • Encourages lending by reducing risk - USAID guarantees up to 50% of the net loss on principal for investments covered by a guarantee, sharing the risk with the private-sector partner.
  • Builds banks lending capacities - Guarantees provide local financial institutions with the security to extend credit and expand into new sectors. These guarantees are often coupled with training and professional assistance from USAID designed to strengthen a financial institution’s long-term involvement in local credit markets, beyond the coverage of a DCA guarantee.
  • Demonstrates benefits of credit by providing local partners with access to less expensive credit. Subsequently, by demonstrating the sustainability and profitability of development activities using that credit, local institutions are more likely to expand financial services to traditionally underrepresented economic sectors and social groups.
  • Maximizes U.S. Government funding - By using credit from local sources to finance development activities, one dollar from the U.S. Government can leverage up to 50 dollars in loans.
 
For further information about USAID’s partial guarantees, please refer to the DCA site.