A donor’s perspective
I recently attended the Impact Forum 2014 in Singapore and came away with a better understanding of the challenges Social Enterprises face in attracting capital, as well as concerns some investors face in entering new sectors or markets. Working towards achieving the goal of improving 1 billion lives requires new, creative approaches to scale business models that are successful but are in need of additional capital. Lenders and investors are concerned about risk, so in some cases risk mitigation techniques are useful to attract capital.
I believe the USAID credit guarantee program is an excellent tool that can be employed to reduce risk and demonstrate to the market that a particular sector can be attractive from a lending standpoint. Our credit guarantee program started in 1999, and since then we have guaranteed $3.1 billion in 71 countries. Our guarantees are for debt only, and can only be entered into with a private entity. A typical transaction in the past involved USAID partnering mostly with banks; however, recently, we have greatly expanded the types of partners we work with, such as private equity firms and investment banks.
These types of transactions can also be complex. Let me give you two examples. The first is a risk-sharing agreement between General Electric, USAID and the Kenya Commercial Bank (KCB). Under the program, qualifying healthcare providers will have the opportunity to access more favorable financing through improved risk-sharing, training, and services. Advantages include longer loan terms, competitive interest rates, and small upfront capital investments. This first of its kind transaction was designed in response to the lack of local credit for health facilities in Kenya to purchase much needed medical and diagnostic imaging equipment. The guarantee will allow KCB to take additional lending risks for clients in the health sector seeking to purchase GE equipment. The partnership also marks the first time that a Development Credit Authority facility was established directly with the support of a multinational company.
The second is an agreement with a private investment fund, Northern Lights Capital Group. USAID is providing a 40% credit guarantee for a $100 million transaction that will provide 300 to 500 megawatts of clean energy. I believe this guarantee is a perfect example of how everyone wins – the investor, USAID and most importantly, the environment. Going forward, I anticipate more of these types of transactions and I actively work in Asia with the private sector to create innovative solutions involving a credit guarantee to solve development problems.
Kevin Martin,
Field Investment Officer,
USAID Regional Development Mission for Asia