DCA program in BiH
USAID Loan Guarantee Program Overview
Originally authorized by the US Congress in1998, the Development Credit Authority (DCA) provides overseas U.S. Agency for International Development (USAID) Missions with a tool by which they may encourage the use of credit and expand financial services in underserved markets. This Authority, supported by the USAID Office of Development Credit, allows the USAID Missions to partner with local lending institutions in making resources available for investments that support development objectives. Through DCA, Missions insure a portion of the risk with the lending institutions. As a result, a small amount of USAID development assistance funding enables the local banking sector and other sources of private capital to accept projects that otherwise would not be funded.
The goals of DCA are two-fold: to mobilize private capital to finance development initiatives abroad and to demonstrate the economic viability of such investments to the local banking sector and to other sources of private capital.
DCA Bank Guarantees Program in Bosnia and Herzegovina
The USAID Mission in Bosnia and Herzegovina has entered into loan portfolio guarantee agreements with three local partner banks in order to provide both short term and long term financing for BiH private enterprises in agricultural production and processing, wood processing and tourism. These sectors have been earlier recognized as sectors with great economic potential for Bosnia and Herzegovina. The agreement was signed in October, 2003, with UPI Bank, Volksbank BiH and UniCredit Zagrebacka Bank. The USAID Mission has provided banks with a 50% percent guarantee on the loan principal, extended under the terms of the Guarantee Agreements. The banks have been using their own funds and a credit review process to fund and approve these loans. The sum of loan amounts projected to be extended under the program shall total $31 million. The banks have been given a period of four years in which to use the guaranty (until August 2007), while the guaranty coverage will last for 7 years (August 2010).
The implementer of this program in BiH for the wood processing and tourism sectors is the Cluster Competitiveness activity (CCA), while another USAID project, Linking Agricultural Producers to Processors (LAMP), focuses DCA loan assistance on agriculture sector.
The DCA Loan Portfolio Guarantee Program (LPG) implemented by the CCA, supports the USAID strategic objective of increasing economic development and job growth in BiH. Moreover, this Program enables leverage of the USAID funds to maximize assistance to the BiH banking sector and economy, and promotes risk sharing with the partner banks. The DCA LPG Program has been allowing banks to make longer term loans without substantially increasing their risk exposure. It has also been providing technical assistance in analyzing loan requests from the three mentioned sectors, as well as bad loans collection techniques. Finally, the DCA LPG Program has been enabling banks to extend loans to borrowers who otherwise may not qualify for loans under the banks’ regular lending parameters.
The three banks selected for this initiative have been active USAID partners since 1996, through other various USAID projects in Bosnia and Herzegovina.
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