USAID monitoring, evaluation, and learning initiative study of USAID/EL Salvador development credit authority (DCA) in El Salvador

Overall, the DCA loan guarantee program has had a positive impact on target sectors and borrowers who implemented loans in El Salvador from January 2012 to September 2020. DCA loans made to small and medium sized enterprises (SMEs) facilitated increased sales, the number of clients, and the number of new jobs according to borrowers who responded to the study online survey (OLS). Borrowers reported in interviews that the quality of their products also improved and allowed them to move into new markets. By September 30, 2020, over 1,135 borrowers had received DCA-backed loans totaling $55.3 million. The study found that the DCA program agreements fostered lending behavior changes in banks that resulted in the inclusion of more small and medium enterprises (SMEs) and higher-risk borrowers who would not have received loans without the program. Evidence from the study indicates that the banks are likely to continue lending to these higher-risk borrowers, although possibly at higher interest rates. The information obtained from the OLS showed that the borrowers receiving DCA-backed loans channeled the loan proceeds mainly towards working capital and, to a lesser extent, towards machinery and equipment acquisition. DCA loans provided essential support during the COVID-19 pandemic, supplying funds to weather the economic slowdown and make the SMEs more resilient. The study recommends that USAID encourage banks to provide more loans to SME’s working in sectors highlighted as growth industries by the El Salvador Government, including tourism, information technology and communications, agriculture, and construction; to purposely target more women-owned SMEs, including those working in micro artisanal businesses; include more financial modalities; continue the flexibility for continencies offered during COVID-19; provide more guidelines to implementing banks and targeted technical assistance to businesses; and create a more comprehensive monitoring system to complement the CMS.