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From microcredit to impact investing to social enterprise startup funding, this blog explores money matters.

Wednesday, March 28, 2012

Guest Post: How USAID is Putting Local Wealth to Work

By Ben Hubbard

A USAID guarantee in Uganda helped a business owner to bring his number of staff to 50, including this cook. (Image credit: Morgana Wingard)

 

Editor's Note: This post was originally published on the USAID Impact Blog and has been republished with permission. 

In the 1960s, during USAID’s founding decade, official development assistance represented 70 percent of all capital flows to developing countries. Today, foreign aid makes up just 13 percent, having been replaced over time by trade, investment, and other sources of private capital.

This changing landscape means our impact can be even greater. Rather than using our development dollars to substitute for missing private capital, we can use them to attract it. Even better, we can unlock existing local wealth and put it to work for development

That’s what we do at the Development Credit Authority (DCA). In our 12 year history issuing credit guarantees, DCA has worked directly with more than 200 local private financial institutions, reaching more than 100,000 credit-worthy, but underserved borrowers. In 2011 we established 37 guarantees that will mobilize an additional $200 million in commercial capital in 21 countries.

 

Among the highlights, we supported the first-ever municipal bond offering in Serbia, a historic step in the development of their local capital markets. We finalized a $25 million deal with J.P Morgan Chase and a group of impact investors that will fuel economic growth in East Africa by providing equity financing for small businesses. And we signed a $34 million guarantee in Egypt that will mobilize capital for small businesses that lack access to credit following the turmoil of the Arab Spring.

Aside from these unique deals, DCA created a Strategic Transactions Group in order to develop capital markets alternatives to typical development solutions. At the Agency level, Field Investment Officers are being deployed to our regional missions to originate innovative deals and ensure financing solutions become a critical component of USAID programming. 

This is a good start. In the coming year we will further deepen our work across the Agency, helping to incentivize private investment so that development continues long after we exit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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