DEVELOPMENT CREDIT AUTHORITY-DCA PRESENTATION TO FTF PARTNERS 2nd QUARTRLY COORDINATION MEETING
EXECUTIVE SUMMARY DCA programs have been in Ethiopia for 13 years and facilitate increased lending via partnerships with local lenders Current Ethiopian DCA have been expanded to provide enhanced coverage to agriculture and health care industries More than US$20 million combined is available for agriculture and health care loan guarantees, with the objective to increase lending and grow the equipment leasing market Serengeti Capital gives Technical Assistance to this program focusing on both Borrowers and Banks
MAJOR OBJECTIVES OF DCA PROJECT Loan guarantee scheme (50%) with local banks supporting small and medium enterprises in various sectors Support the development of key sectors and financial markets Mobilize local cash, encourage local markets, and explore new sectors and activities Demonstrate the sustainability and profitability in tradition under represented economic sectors
OVERVIEW OF DCAs Background Approach • Partnership agreements with local private banks • USAID guarantees 50% of borrower’s collateral need • Partner banks reimbursed the net principal on default loans covered under the agreement • All loans made with partner banks’ funds • Due diligence and credit decisions made by lender Broad financing authority allowing private sector bank resources to have a greater and sustainable impact in supporting economic growth Have been used by USAID/ Ethiopia since 1999 to stimulate lending to underserved markets Past target groups include SMEs in priority members of the Diaspora community and women entrepreneurs focusing on Agriculture related activities.
CURRENT ETHIOPIAN DCA Agricultural Equipment Financing DCA Health Care DCA Diaspora DCA Women DCA Structure
PROPOSED DCA STRUCTURE Health care • A US$13.5 million, multi-bank loan portfolio guarantee for private health providers offering HIV/AIDS and TB services • Equipment financing facility shared by two private commercial banks - NIB Bank and Bank of Abyssinia Agriculture • A US$7.3 million, multi-bank loan portfolio guarantee for six years • Equipment financing facility shared equally by two private commercial banks - Bank of Abyssinia and Zemen Bank
EXPECTED IMPACT Results • Partner banks increase lending in agricultural sector – especially financing for agricultural equipment • Targeted small holder farmers and agro-processing industries will have opportunity to accumulate capital assets that enable them to maximize their farming activities Long-term goals • Partner banks develop own strategy for expanding lending to targeted businesses without a guarantee, perhaps via leasing subsidiaries or expanded lending via intermediaries to agricultural sector • Additional local financial institutions will introduce equipment leasing businesses/ subsidiaries or, at a minimum, increased lending to this sector
SERENGETI CAPITAL’S ROLE Provide technical assistance under the various programs as follows: Serve as a point of contact for DCA implementation & monitoring Provide borrower focused TA Provide bank focused TA Health care Agricultural equipment leasing Technical assistance Diaspora Women entrepreneurs
BORROWER FOCUSED TA TA SUPPORT PROCESS
BORROWER FOCUSED TA Business development • Assist with business plan development • Review Business plan and cash flow projections • Appraise Feasibility studies • Advise on bank regulations and guidelines • Business registration assistance • Training on business functions Potential lenders • Help potential borrowers understand how lending process functions • Link potential borrowers with appropriate banks
BORROWER FOCUSED TA CHECK LIST OF REQUIREMENTS FOR LOAN APPLICATION • Original collateral documents (e.g. Title deed, car ownership booklet, etc…) • Consent of mortgagor (if property owned by third party) • Evidence of marital status • Financial statements/S;I/S;C/F) • Invoices • Bills of quantity • Credit information from other banks • Application letter • Yellow card • Tax identification No. • Feasibility study/Business plan • Valid license/registration No. • Investment permit • Article and memorandum Association/PLC/SC • Delegation of Authority for signing loan contracts • Company board resolution to borrow
BANK FOCUSED TA Capacity building • Training on how to administer the DCA guarantee • Training on credit-risk analysis and cash-flow lending • Pre-screening and referrals of potential beneficiaries • Conducting field visits with bank staff to observe potential projects and borrowers Marketing assistance • Designing and promoting a lending product using the guarantee • Advising on setting up specific lending units in the Bank to promote new products around guarantee • Outreach to potential borrowers targeted by the guarantee
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