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4.4.5. Digital Plus for Financial Products other than Mobile Money (e.g. loans, insurance, agrovouchers)

DESCRIPTION Digital Plus provides additional services on top of mobile banking infrastructure. Examples include loans, insurance (e.g. crop insurance), or agro-vouchers, among others. Mobile banking infrastructure is conducive to a more secure financial market, and Digital Plus is the term that encompasses various strategies for USAID to take advantage of this infrastructure to provide an even stronger foundation.

4.4.4. Build Payment Systems

DESCRIPTION Cash-only economies limit enterprises and consumers from reaching their potential. They are limited to in-person transactions, and at a relatively low cost, considering the resulting insecurity consumers and enterprises feel when having a significant amount of cash on hand. It is additionally difficult for enterprises to obtain investments from sources outside of their immediate community. USAID holds expertise in supporting digital payment systems, from physical banking with electronic credit cards, to mobile banking, which may be more appealing in rural markets.

4.4.3. Alternative Credit Scoring and Rating

DESCRIPTION “The International Committee on Credit Reporting (ICCR) expands on alternative data as ways to collect and analyze data on creditworthiness based on information readily available in digitized form but ‘alternative’ to conventional methods such as documented credit history. It has been broadly categorized as: Structured data, e.g. utilities, mobile phone, rental information and taxes; Unstructured data, e.g.

4.4.2. Build Collateral Registries

DESCRIPTION A collateral registry is a record of legal claims to personal property used as collateral for a loan. Transparent collateral registries allow lenders to check if collateral being offered as security for a loan has already been pledged to another lender. Modern collateral registries are often computerized, improving the timeliness, accuracy, and accessibility of collateral information to avoid disputes over rights to property.

4.4.1. Build Credit Bureaus

DESCRIPTION A credit bureau is an agency that researches and collects credit information on individuals and sells that information to creditors when they are making decisions on loans. As such, credit bureaus and electronic funds transfer systems can increase security and transparency, further reducing risks and cost-to-serve (Source: Mobilizing Private Finance for Development: A Comprehensive Introduction).

4.3.7. Support Bankruptcy Law

DESCRIPTION Bankruptcy law includes legal procedures and regulations initiated by an individual or a business that cannot pay their debts and seeks to have the debts discharged or reorganized by the courts. Bankruptcy law is a risk mitigation tool, helping to protect lenders, so if a borrower defaults, a lender is protected.

4.3.6. Provide Governments with Advisory Support for Tax Policies and Collection Systems

DESCRIPTION Tax policy and collection is essential for adequate financial market oversight, and also helps lower interest rates. Also known as ‘domestic resource mobilization’ (DRM), it is the process through which countries raise and spend their own funds to provide for their people – i.e. the long-term path to sustainable development finance. DRM not only provides governments with the funds needed to alleviate poverty and deliver public services, but is also a critical step on the path out of aid dependence.

4.3.4. Support a Strong Rule of Law and Security & Governance

DESCRIPTION A necessary condition for an effective financial marketplace is rule of law, the assurance that property rights are secure and that contracts will be enforced. Additionally, a secure environment disincentives corrupt behavior and attracts investors who would otherwise be hesitant to invest in an environment that was unstable and unpredictable.

4.3.3. Facilitate Shareholder Rights

DESCRIPTION Shareholder rights are company owner’s right to maintain ownership, transfer ownership, inspect corporate documents, and sue for wrongful acts, etc. Without these, no one would invest in equity. Shareholder rights are especially important to investors in the stock market. The ability to record ownership of property, as well as to pledge one’s rights to that property as collateral, is essential to commerce (Source: Mobilizing Private Finance for Development Training).

4.3.2. Improve Government Financial Management Systems and Record Keeping

DESCRIPTION While USAID is no longer heavily engaged in macroeconomic policy, it continues to be deeply involved in fiscal policy and practice. Domestic resource mobilization and public financial management are considered key parts of the journey to self-reliance for USAID partner countries. Poor fiscal policy and systems can impact the cost of funds, pushing up interest rates due to governments borrowing to cover deficits.

4.3.1. Establish a System to Record and Protect Property Rights

DESCRIPTION Confidence in and the ability to enforce property rights and the rule of law are essential building blocks of commerce. Without both the legal property rights protections and the procedural ability to demonstrate and enforce ownership, private commerce and finance are severely constrained because it is impossible to enforce contracts and to protect private capital. How can a prospective borrower pledge property as collateral if they cannot prove ownership? Why would a bank grant a loan if it could not enforce payment or claim collateral in the case of default?

4.2.11. Community Savings Groups, VSLAs, SACCOs

DESCRIPTION A Community Savings Group is a community-based lending program. A group of people in a community agree to save a certain amount periodically and deposit these savings in a group account. This money is then lent over the course of one year based on demand, after which the loans need to be repaid (Source: Savings Groups Empower Women in Sierra Leone).

4.2.10. Broker Bundled Financial Services (e.g. Crop Insurance)

DESCRIPTION “Bundled services,” also called “complementary programming,” or―in the case of savings groups―“savings groups plus,” are added services that are designed to improve the impact of microfinance interventions on a target population (Source: Microfinance with Bundled Services for Orphans and Vulnerable Children).

4.2.9. Upgrade Relevant IT Systems in Financial Institutions

DESCRIPTION Financial institutions depend on adequate IT infrastructure in order to track account balances, facilitate loans, secure transactions, comply with regulations, and many other essential functions. Financial institutions in developing economies may have weaker IT infrastructure, resulting in missed payments, security vulnerabilities, lack of liquidity and overall societal distrust of electronic payment transactions.Through funding IT advancement and upgrades within financial infrastructure, USAID can foster a secure and trustworthy banking environment.

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.