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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.

4.2.7. DCA Loan Guarantees for Financial Intermediaries

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. A bank interested in financing a project may submit a qualifying proposal through USAID’s Credit Management System, and USAID responds by guaranteeing up to 60% of the bank’s loan, should the proposal be approved.

4.2.6. DCA Loan Portfolio Guarantees for Financial Intermediaries

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. A bank interested in financing multiple projects may submit qualifying portfolios through USAID’s Credit Management System, and USAID responds by guaranteeing up to 60% of the bank’s loan, should the portfolio be approved.

4.2.5. Train MFIs to Prepare for Natural Disasters and Catastrophes

DESCRIPTION Natural disasters can quickly wipe out a community’s homes, crops, livestock, and businesses. In the aftermath, affected populations often need money—accessed through savings or loans—to rebuild their lives and livelihoods. In many disaster-prone countries, however, getting cash is not as easy as walking into a neighborhood bank. Around the world, low-income households and small business owners frequently cannot access regular banks. Rather, they rely on various types of microfinance providers, from local savings-and-credit groups to credit unions and cooperatives.

4.2.4. Crop/Life Insurance

DESCRIPTION Crop insurance is purchased by agricultural producers, including farmers, ranchers and others to protect against either the loss of their crops due to natural disasters, or the loss of revenue due to declines in the prices of agricultural commodities. There are two major types of crop insurance: multiple peril crop insurance (MPCI) and crop-hail insurance (Source: Understanding Crop Insurance). CONSTRAINTS ADDRESSED Ability to resolve bankruptcies in a timely manner

4.2.3. Catastrophe Bond (CAT Bond)

DESCRIPTION A catastrophe (CAT) bond is a high-yield debt instrument that is usually linked to insurance intended to raise money in case of a catastrophe. CAT bonds will provide a payout to the insurance company if a defined event occurs, such as total loss greater than a specific amount or an earthquake of a certain magnitude or greater (Source: Mobilizing Private Finance for Development: A Comprehensive Introduction).

4.2.2. Provide Concessional Capital, Including First Loss

DESCRIPTION Blended capital is the combination of concessional funding (usually public or philanthropic funds) with impact or full-return private capital in a way which lowers the overall funding cost, or conversely, increases the yield for private capital. It can directly change the risk-return equation. Since the “concessional” capital requires a lower (sometimes zero) return, a higher return can be paid by the borrower to the private for-profit finance provider.

4.2.1. Provide Training on Lending and Loan Administration (e.g. share lending toolkits)

DESCRIPTION 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.

4.1.6. PAYGo Systems

DESCRIPTION Pay-as-you-go, or PAYGo, systems allow small and medium-sized enterprise (SME) owners, as well as consumers, to only purchase the amount of a product they need, as they use it.This allows individuals with limited means to take advantage of available capital, e.g. electricity, up to whatever their imposed limit may be. A PAYGo system does not require consumers to purchase significant capital prior to its use.

4.1.5. Variable Payment Obligation (VPO)

DESCRIPTION Variable Payment Obligation programs (VPOs) aim to expand access to finance for Small and Growing Businesses (SGBs) with a type of loan that assesses risk and repayment through variable payments and cash flow, rather than traditional assets – assets that an SGB may or may not be able to provide to a finance provider.

4.1.4. Provide General Financial Literacy Training to Households and SMEs

DESCRIPTION The Center for Strategic and International Studies defines financial literacy as “the ability to understand and execute matters of personal finance, including basic numeracy, interest compounding, inflation, and risk diversification” (Source: Financial Literacy: Challenges and Opportunities).

4.1.3. Train Finance Seekers in Marketing Skills

DESCRIPTION Marketing skills are an essential element to increasing the profitability of SMEs. Strategic marketing not only advertises an enterprise’s offerings to the consumer, but to finance providers as well. USAID is experienced in assisting enterprises with marketing the benefits of their product or idea, particularly within the agricultural sector.

4.1.2. Provide Finance Seekers with Advisory Support in Building Proposals

DESCRIPTION Banks and other finance providers often claim they are eager to increase their portfolios and make investments, but they rarely receive financing requests from prospective borrowers in an actionable form, with the data and analysis needed for them to make a financing decision. Individual entrepreneurs and small and medium-sized enterprises (SMEs) may have limited experience communicating financial analysis and projections. As such, USAID has a long history of providing Business Advisory Services (BAS) to enterprises to assist with financial proposal development.

4.1.1. Partial Grants and Cost-sharing for Financing

DESCRIPTION Giving a grant to a business to fund operations or covering part of the business’ costs to overcome the business’ lack of access to capital (inability to attract equity, get a loan). An example of this would be grants and prizes awarded through the Development Innovation Venture (DIV).

Finance Wiki

This wiki provides an overview of the role of finance in development and descriptions of financial interventions that exist to address constraints to mobilizing finance.

Markets in Fragile Contexts Technical Resource Summary

EEFS' technical one-pager highlights learning from the full eastern DRC SeedCLIR report, two technical articles, and a global webinar to describe how development actors and policymakers can facilitate an improved enabling environment for seed in DRC through a phased approach.