4.2.8. DCA Bond Issue Guarantees

DESCRIPTION

The USAID Development Credit Authority (DCA) uses partial credit guarantees to mobilize local financing in developing countries. Guarantee agreements encourage private lenders to extend financing to underserved borrowers. In the instance of a Bond Guarantee, USAID works with a trustee to guarantee a certain percentage of funds. If investors want to liquidate bonds and the issuing institution is lacking sufficient funds, USAID is responsible for the percentage agreed to when the bonds were sold (Source: DCA One Pager).There are two other types of DCA guarantees: Portfolio Loan Guarantees and Single Loan Guarantees.

CONSTRAINTS ADDRESSED

  1. Ability of borrowers to show formal registration
  2. Ability to file/record a security interest on movable property pledged as collateral
  3. Ability to file/record a security interest on real estate pledged as collateral
  4. Ability to have commercial disputes resolved in a timely manner
  5. Ability to recover and sell property pledged as collateral
  6. Ability to resolve bankruptcies in a timely manner
  7. Access to reliable credit information on borrowers
  8. Appropriate capital to meet borrower needs
  9. Cash flow uncertainty
  10. Exchange rate risk
  11. Interest rate risk
  12. Off-take risks associated with target sector/region
  13. Potential for higher inflation
  14. Production costs associated with target sector/region
  15. Rate of return on lending in target sector/region
  16. Unpredictable fiscal policy

ADVANTAGES 

Coming soon.

DISADVANTAGES

Coming soon.

MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER

Coming soon.

VIGNETTE: IIX WOMAN’S LIVELIHOOD BOND PROGRAM (WLB)

SITUATION

WLB is a $8 million bond and is the first in a series of IIX Social Sustainability Bonds. It will provide multi-country and multi-sector financial and social returns and will impact the lives and livelihood of over 385,000 women across Southeast Asia.

STRUCTURE

USAID guaranteed 50% of the principal amount of the first Woman’s Livelihood Bond Program, issued and listed on the Singapore Exchange.

IMPACT

TBD – Recently instituted, ongoing program.

 

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