United States Agency for International Development (USAID)

Background

"The U.S. Agency for International Development is headquartered in Washington, D.C.. USAID provides assistance to foreign countries with the interest of expanding democracy and improving the lives of citizens in developing nations. USAID is actively working in agriculture, democracy & governance, economic growth, the environment, education, health, global partnerships, and humanitarian assistance in more than 100 countries with a focus on providing a sustainable, bright future."

Economic Growth and Trade (EGAT)

"USAID works to help developing countries achieve rapid, sustained and broad-based economic growth – the growth needed to ensure their peoples’ well-being over time. USAID’s Economic Growth Strategy, Securing the Future: A Strategy for Economic Growth (April 2008) guides efforts in this area through three program approaches:

• Develop Well-Functioning Markets

  USAID programs recognize that economic growth is ultimately based on the ability of enterprises, of all types and sizes, to become more productive. For this reason, USAID works to identify barriers to enterprise growth and to promote legal and regulatory reforms that will ensure a climate for sustained expansion. Emphasis is placed on microeconomic reforms, or reforms that affect enterprises at all levels, from street vendors to family farms to large corporations. USAID also supports macroeconomic reforms, or reforms that affect a country’s national economy, on a more limited basis.

• Enhance Access to Productive Activities

  USAID works to ensure that the poor, women and other disadvantaged groups benefit from economic growth. It supports programs that help poor households obtain credit and other financial services needed to start small businesses and undertake other activities that create income. It also provides micro and small enterprises with business services that can improve their productivity and ability to compete in the global marketplace.

• Strengthen the International Framework of Policies, Institutions and Public Goods

  USAID supports international research that contributes to economic growth such as the development of new seed varieties that increase crop output and farmers incomes. USAID helps poor countries adopt international standards and practices such as improved procedures for customs and border operations that can lower costs and increase efficiency, and better financial management systems that allow for stronger oversight of government spending and reduce chances for corruption.

Specifically, USAID supports these approaches through efforts to: improve the environment for enterprise growth and competitiveness; strengthen economic policy and governance; create sound, well-governed financial systems; support business enabling environments; support microfinance programs and business services for micro and small enterprises; and build trade capacity. Other sectors where USAID works to promote economic growth include: agricultural development; infrastructure improvement, including the upgrading of energy, telecommunications and water and sanitation services; workforce development; education; and health.

Development Credit Authority

"Banks in developing countries have extremely conservative lending practices. They often prefer to invest in high-yielding government treasuries, or in large corporations that they view as low-risk. Consequently, smaller businesses face difficulties accessing the credit they need to invest in growing and expanding their enterprises. Frequently these potential borrowers are unable to qualify for a loan. If they are able to qualify, they are often unable to meet collateral requirements that can be as high as 100-200 percent of the value of the loan.

To encourage financial institutions to lend to creditworthy but underserved borrowers, USAID uses the Development Credit Authority (DCA). DCA is a tool that USAID missions use to stimulate lending through the use of partial credit guarantees. These risk-sharing guarantees, which generally cover up to 50% of loss on loans made by financial institutions and investors, use the private sector wealth to stimulate broad-based development that is truly sustainable. These guarantees have been used in a variety of ways, for example: to support municipal lending to increase access to clean water and clean energy; to enable health clinics to invest in medical equipment; and to enable businesses and families to recover after natural or man-made disasters.

Since DCA was established in late 1999, more than 234 partial credit guarantees have facilitated over $1.9 billion of private capital debt financing in more than 70 countries. Through the DCA guarantee mechanism, USAID is able to leverage an average of $30 in private sector funds for every dollar spent by the U.S. Government. Claims on the DCA portfolio are approximately 1 percent, demonstrating that the targeted borrowers are both a creditworthy and profitable source of business."

References

http://www.usaid.gov/our_work/economic_growth_and_trade/