4.2.1. Provide Training on Lending and Loan Administration (e.g. share lending toolkits)
Fund training and/or provide direct technical assistance to investors to help them expand into new markets or increase their activity in existing markets through support with fundraising, market research, strategic planning, and/or staff development.As part of this intervention, USAID may consider producing and sharing a lending toolkit with financial intermediaries (FIs). Lending toolkits contain a collection of policies, templates, tools, manuals, and guidelines for FIs. Lending toolkits, such as USAID's Lending to the Agriculture Sector Toolkit, describes the constraints addressed by training and lending toolkits, specifically:“The underlying premise is that FIs will not get into areas of specialized lending areas unless and until they believe that they can do so profitably and sustainably.The toolkit therefore aims reduce risks and transaction costs by promoting “a standardization of lending processes and a move toward international best practices for agricultural lending.”
Availability of suitable training for the needs of target sector/region
Burden of banking/finance regulations and supervision
Ease/cost of collecting payment
Quality of accounting and auditing standards and qualified accountants/auditors in target sector/region
Sufficient understanding of target sector/region and the needs of borrowers in target sector/region to make lending decisions
Transaction costs associated with originating and managing loans to target sector/region
MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER
Banks and other finance providers are reluctant to enter into new lending areas in which: i) they lack knowledge of the industry; and ii) the size of the market opportunity is uncertain. Developing the lending products and the risk management systems needed to profitably lend in a specialized industry is expensive and risky – most banks and other finance providers will opt out unless they see it as a profitable niche. As a result, even though the need may be great, many banks and other financial providers in USAID presence countries tend to focus on serving large corporate borrowers operating in sectors which they know – and specialized sectors (important to accomplishing development objectives) are starved of the financing they need.
Specialized Financing Toolkits were developed by USAID in conjunction with implementing partners and are designed to support finance providers to rapidly increase financing in the areas of agriculture, clean energy and healthcare. They provide banks and other finance providers with a guided process with which to: (i) conduct a market assessment as to financing opportunities in those sectors, and (ii) assuming those market opportunities attractive enough, support them in rapidly developing credit products and programs to pursue them.
The Specialized Financing Toolkit first ‘whets the appetite’ of finance providers by demonstrating the potential profitability of new market segments which they here-to-fore have not served. It then cuts the cycle time of build programs and products to go after financing opportunities in these new market segments, and significantly reduces transaction costs associated with originating and managing loans and investments in these new areas.