This blog post is part of a continuing series exploring how U.S. agencies are promoting economic growth in their development work. The Presidential Policy Directive on Global Development, released in September 2010, set broad-based economic growth as a pillar of sustainable, effective development policy. In the first post, we take a look at USAID’s Development Credit Authority.
USAID’s Development Credit Authority is working to help meet the Presidential Policy Directive on Global Development’s call to provide a new breed of foreign assistance. The PPD emphasizes the importance of emerging markets in driving development–elevating broad-based economic growth as a top priority. Looking past traditional donors and Official Development Assistance, DCA encourages entrepreneurship in developing countries where capital isn’t readily available.
“Missing private capital” can quash emerging businesses in underserved, finance-strapped regions. DCA works with entrepreneurs to attract loans through partial credit guarantees, sharing the risk with local banks that provide start-up capital for credit-worthy borrowers. Rather than providing traditional, U.S.-led aid, DCA places development squarely in the hands of those it seeks to help. DCA taps into local wealth to fund innovative businesses–ranging from water availability and clean energy to housing and microfinance – that foster sustainable development in the community.
The model has shown success from a business and a development standpoint. DCA reports that 98.25% of their borrowers successfully repay their loans–in Ghana, EcoBank continues to lend to seven of the eight sectors initially backed by USAID’s guarantees. DCA has mobilized over $2 billion of credit in 67 countries, and USAID has deployed Field Investment Officers to regional missions to develop alternative financing solutions.
USAID has collected more in bank fees than it has paid out on defaults ($10 million compared to $8.3 million). DCA stretches the agency’s budget for greater impact: “By encouraging local channels of financing, USAID is empowering entrepreneurs in developing countries to improve their lives at a minimal cost to the U.S. taxpayer.”
DCA reached its 100,000th borrower this year. Hear Hannington and Justine’s story below.