USAID Partial Credit Guarantees FAQs

These guarantees allow USAID to use credit to pursue development purposes specified under the Foreign Assistance Act of 1961, as amended. The Development Credit Authority (DCA) is the tool that provides USAID Missions the authority to issue loan guarantees to private lenders, particularly for local currency loans. These guarantees cover up to 50% of the risk in lending to projects that advance USAID's development objectives. The use of partial credit guarantees is intended to expand investment in local development activities. Since 1999, USAID's field offices have used the DCA to facilitate these public-private partnerships. The guarantees help stimulate development by increasing the flow of credit to areas and activities that need it most, including specific sectors where the need exists to encourage sustainable local economic growth. These sectors include local businesses, public health, education, financial services, and infrastructure projects. The process of using partial guarantees involves the identification, design, implementation, monitoring, and evaluation of a project by the mission. The mission is responsible for ensuring the developmental soundness of the project, while the Credit Review Board and the CFO in Washington are responsible for the financial soundness and determination of cost for each mission project. The Office of Development Credit Team assists missions in project identification and design, as well as compliance with guidelines and regulations established for the guarantee facility. The cost of a USAID loan guarantee is the estimated net cost of the assistance to taxpayers over the life of the guarantee, as expressed in present discounted value terms. The cost is determined by the risk of default, with a higher risk resulting in a higher cost. The typical range for USAID's guarantees is $5-10 million, although loan guarantees have been as low as $1 million and as high as $40 million. Partial guarantees are intended to be used as a credit enhancement tool with true risk sharing on the part of private and public sector partners. The use of partial guarantees is intended for countries and regions where USAID has an active presence, and eligible projects must have positive financial rates of return. USAID may decline to offer credit assistance where risk analysis of a specific project demonstrates that the estimated risk is very high. The benefits of using a credit guarantee include promoting private-sector investment, encouraging lending by reducing risk, building banks' lending capacities, and maximizing U.S. Government funding. Credit assistance is particularly useful in areas such as micro and small enterprise, privatization of public services, infrastructure, and renewable energy. The guarantees can be used to cover up to 50% of the net loss on principal for investments covered by a guarantee, sharing the risk with the private-sector partner.