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May 11, 2015 Maryam Khosharay Sean Keogh · PDF file 2015-05-19 · Maryam Khosharay Sean Keogh . Development Credit Authority DCA credit guarantees encourage banks to convert these

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  • May 11, 2015

    Maryam Khosharay

    Sean Keogh

  • Development Credit Authority

    DCA credit guarantees

    encourage banks to

    convert these liquid

    reserves into loans for

    developmentally

    important projects by

    reducing the bank’s

    risk of doing so.

    Development Credit Authority (DCA)

  • Development Credit Authority

    SOURCE: World Development Indicators, 2011

    Turning Local Wealth into Investments for Growth

    Developed

    Bank liquid reserves Percent of bank liquid reserves to bank assets

    Domestic Credit Provided to Private Sector Percent of GDP

    0 20 40 60 80 100

    Spain

    United States

    Uganda

    Guatemala

    Cambodia

    Botswana

    Afghanistan

    Haiti

    0 50 100 150 200 250

    Afghanistan

    Haiti

    Uganda

    Guatemala

    Botswana

    Cambodia

    United States

    Spain

    Developing

    There are tremendous stores of liquid reserves in developing markets not being put to

    productive use, despite an enormous appetite by private investors to put these assets to work.

  • Development Credit Authority NPL Ratio (>90 days)

    451

    328 166,428

    74

    84% $3,715,748,013 $1,359,336,738

    84,780: 53% 41,671: 27%

    $151,397,096 $14,348,564 2.14%

    $1 : $25 SME: $18,140

    Micro: $3,507 $14,865,303 5.18%

    Leverage Ratio Average Loan Size Total Fees Received

    Since FY99, DCA has signed 451 guarantees, leveraging $3.7 billion in

    private capital, achieving an 84% utilization rate for expired guarantees

  • Development Credit Authority

    DCA Offers 4 Main Products

  • Development Credit Authority

    Diversity of Qualified Lenders and Borrowers

    Financial Institutions

    Private Utility Providers

    Energy enterprises

    Students / Schools

    MSMEs

    Households

    Municipalities

    Farmers / Agribusiness

    Health Clinics

    Rural Banks

    Institutional Investors

    Leasing Companies

    Non-Bank Financial Institutions

    Commercial Banks

    Investment Funds

    MFIs / Coops

    Credit Unions

    A DCA Guarantee can support virtually

    any type of lender and borrower except

    sovereign governments, other donors

    and development finance institutions.

  • Development Credit Authority

    Standard Terms and Conditions

    DCA Guarantee

    ▪ Guarantee Facilities: Average ~$7.5 million (although sub loans much smaller) but can be as large as $100 million per borrower.

    ▪ Loan coverage: Usually 50% on a pari passu basis, but can go up to 80% and offer 1st loss guarantees

    ▪ Sub sovereign guarantees can be considered, no sovereign

    ▪ Direct loan authority but never used

    ▪ Partners pay origination and utilizations fees

    ▪ USAID typically pays guarantee subsidy, but cost can be covered by 3rd parties (gift authority)

    ▪ Principal only coverage, no interest

    ▪ Guarantee cannot be used to cover equity in any form

    ▪ Maximum tenor: 20 years

    Guarantees are structured to match the needs and requirements of

    identified lenders and/or borrowers within USAID policy and legal limits.

  • Development Credit Authority

    Loan Portfolio Guarantee

    USAID supported borrower

    class, though specific

    borrowers unknown at time of guarantee

    L B

    B

    B

  • Development Credit Authority

    Household Technology Guarantee Facility: Partnering

    with Impact Investors Terms Facility Size $100 M

    Partners SIGNINA CAPITAL FUNDS AGmvK SOCIALALPHA INVESTMENT FUND (SAIF) SICAV-SIF CALVERT SOCIAL INVESTMENT FOUNDATION, INC

    Coverage c. 50%

    Guarantee Ceiling

    c. 36M

    Length 5 years

    Currency Local currency loans

    Sub-loan Maturity 12-24 months

    Maximum Loan Size $5 M

    Qualifying Borrowers Manufacturers and Distributers of household technologies

    Targeted Sector

    Environment, Health, SME

    Qualifying Projects Growth businesses operating throughout value chain

    Targeted Geographies

    Africa, Latin America, S/SE Asia

    Project description: DCA and Sida developed a loan portfolio guarantee facility with three

    international financial institutions, two of them being impact investors, to encourage lending to

    businesses needing working capital in the household technology sector. The guarantee covers

    loans in Africa, Latin America and South/Southeast Asia, all areas of high market demand. The

    guarantee structure will include risk elements that lower DCA’s overall exposure based on the

    financial partner’s comfort with the target borrower group and the desire to reach a $100M

    facility size from limited funds. A reserve fund of $25M will be allocated based on utilization,

    development and exposure performance of financial partners.

    1

    2

    2

    Partner 2 $25M

    DCA Guarantee

    Household

    Technology

    Business

    1

    Household

    Technology

    Business

    Household

    Technology

    Business

    Financial partners make working capital loans

    to household technology businesses

    DCA provides a guarantee on the principal of

    each eligible loan

    Partner 1 $25M

    Partner 3 $25M

    Reserve $25M

    3 Reserve will be allocated based on financial

    partners’ ability to create the greatest risk-

    adjusted impact

    3

  • Development Credit Authority

    We analyze financial indicators (utilization) and development indicators.

    Utilization Benchmarks

    Years Since

    Obligation

    Cumulative

    Utilization

    Target

    1 20%

    2 40%

    3 50%

    4 60%

    5 80%

    6 100%

    7 100%

    Partner bank behavior change due to the DCA

    •High utilization, increased lending to the sector

    •Lower interest rates or collateral requirements

    •Longer term financing

    •Creation of an agriculture/SME lending unit or loan

    product

    •Increased lending to sector after guarantee expires

    •Tracking women, first-time borrowers, rural areas

    •Low default rates

    Greater development impact

    •Impact on beneficiaries and households

    •Other partner banks to entering the sector

    •Policy change - i.e. partnering with central banks to

    support their mandate to financing to agriculture

    How do we define success?

  • Development Credit Authority

    Strategic, market moving investments and partnerships

    1

    2

    3

    4

    Strategic Interventions Looking Forward

    Partnerships with multinational companies

    Access to long-term financing

    Leasing, insurance, and warehouse receipts

    Development Impact Bonds (DIBs)

    Municipal bonds and finance 5

  • Development Credit Authority

    Contact Information & Additional Resources

    Africa

    Megan Rapp

    202-712-1482

    [email protected]

    LAC / E&E

    Romi Bhatia

    202-712-0834

    [email protected]

    Strategic Finance

    Sean Keogh

    202-712-5970

    [email protected]

    Asia

    Amanda Femal

    202-712-1707

    [email protected]

    Office

    Michael Metzler

    202-712-5344

    [email protected]