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What is the USAID Development Credit Authority (DCA)?

What is the USAID Development Credit Authority (DCA)?. A Public Private Partnership Legal Authority for USAID to issue Credit Guarantees Guarantees backed by US Treasury Tool for USAID Missions (like contracts), not a separate program. How Does it Work?.

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What is the USAID Development Credit Authority (DCA)?

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  1. What is the USAIDDevelopment Credit Authority (DCA)? • A Public Private Partnership • Legal Authority for USAID to issue Credit Guarantees • Guarantees backed by US Treasury • Tool for USAID Missions (like contracts), not a separate program

  2. How Does it Work? • USAID signs an agreement with a financial institution • The financial institution makes loans to a single borrower or pool of borrowers • USAID pays up to 50% of any defaults on those loans Partner Lender (Financial Institution) 50% Guarantee on Principal Loan Disbursement Unidentified Borrower Unidentified Borrower Unidentified Borrower Loan Repayment

  3. FSP’s recent NBFI Mapping Study:Key Challenges Facing NBFIs The study concluded the following which supports the need for an SME Debt fund: • The average financing requirement in current lending activities is be estimated at R72 million per NBFI (range extends up to R300 million) but the anticipated demand in the next twelve months is estimated to increase to R200 million per NBFI suggesting a demand size amongst these respondents of R4.8 billion.  • 72% of NBFIs indicated that access to capital for on-lending is more of an issue than access to investible, high-quality SMEs. • Several described that there has been an increase in the number of high quality SMEs seeking finance but they do not have the funding capacity to engage with those opportunities.  • There is significant demand and critical need for a larger pool of capital to support the lending activities of NBFIs servicing SMEs. 

  4. The SME DEBT FUND • Credit enhancement of individual transactions and portfolio guarantees within the Fund • Utilized for: a) Small-Medium-and-Micro Enterprises (SMEs), b) Non-Bank-Financial-Intermediaries (NBFIs), or c) NBFIs for whom a meaningful portion of their business is to provide financial support to SMEs • NBFIs are expected primarily to fill the gaps in the supply of financial services to smaller businesses

  5. The SME DEBT FUND • The role of the USAID guarantee will be to catalyze private sector commitment into investing in the job-creating performance-oriented power of SME’s. • Major constraint is unlocking capital for SME and SRI investments – DCA will help to raise capital for these important sectors • Demonstration effect: partners are able to demonstrate to the major institutional investors (i.e. pension funds, insurance funds, etc.) that lending into the SME sector can be a safe haven if managed appropriately. • A viable vehicle for these investors and that the lending into the sector can eventually be made without DCA support. • Fund raising efforts both domestically and internationally

  6. The SME DEBT FUND Development Credit Authority Local and International Institutional and Individual Investors Primary Risk Driver Asset Manager(s) NBFI Debt Fund(s) Applications: On-Lending Underlining Risk Driver NBFI NBFI NBFI NBFI SME SME SME SME SME SME SME SME SME Multiplier Effect

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