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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).

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.

4.1.3. 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.

4.1.4. 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).

4.1.5. 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.

4.1.6. 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.

4.2.1. 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.

4.2.2. 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.

4.2.3. 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).

4.2.4. 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

4.2.5. 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.

4.2.6. 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.

4.2.7. 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.

4.2.8. 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.

4.2.9. 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.

4.2.10. 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).

4.2.11. 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).

4.3.1. 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?

4.3.2. 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.

4.3.3. 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).

4.3.4. 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.

4.3.6. 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.