WFP-P4P Annual Conference January 30, 2013

WFP-P4P Annual ConferenceJanuary 30, 2013

Development Credit Authority

DCA Aims to Shift the Paradigm of Financing Development

Traditional development financing

Commercial finance

Grants

Financing after DCA engages

Commercial finance

Grants

Sustainability


SOURCE: World Development Indicators, 2010

Turning Local Wealth into Investments for Growth

Developing Developed

Bank liquid reservesPercent of bank liquid reserves to bank assets

Domestic Credit Provided to Private SectorPercent of GDP


DCA’s Standard Product


USAID-DCA / WFP-P4P Partnership

Increase smallholder farmers’ ability to access finance to increase profitability and supply to WFP-P4P

Encourage financial institutions to-lend to agricultural value chains prioritized in USAID’s Feed the Future (FTF) strategies of four East African countries

- Ethiopia- Kenya- South Sudan- Tanzania

-accept direct contracts and forward contracts from WFP-P4P as a form of collateral substitution / market risk mitigant

Goals



MethodologySet up three new bilateral DCA loan portfolio guarantees (LPGs- Kenya ($15m, Kenya Commercial Bank)- South Sudan ($7m co-guaranteed with AGRA, Equity Bank, Kenya

Commercial Bank, Finance SS Ltd)- Tanzania ($10.3m, National Bank of Commerce)

Amended one existing DCA LPG- Ethiopia ($7.3m, Bank of Abyssinia, Zemen Bank)

Use existing USAID Mission-level technical assistance (TA) programs that link borrowers to the guaranteed lender

All multi-year programs launched in September 2013


USAID-DCA / WFP-P4P Partnership1 DCA provides a loan portfolio guarantee

for a financial institution to lend to FTF value chain actors, including producer organizations, aggregators, and traders

2 Direct contract/forward contract issued (in cases where WFP and other purchasers enter into these agreements) with producer groups and aggregators

3 USAID TA connects potential borrowers – including those with direct contracts or forward contracts – to the financial institution with a DCA guarantee

4

Banks provide loans to FTF value chain actors (both pre- and post-production loans) using direct contracts and forward contract as either a risk mitigant or partial or full collateral substitution where applicable

5

FTF value chain actors fulfill contracts (where applicable)

6 FTF value chain actors repay loans

TA provider

1

3 3

6

4

52

WFP, Other purchasers

Financial institution

DCA

FTF value chain actors

(i.e. producers,

aggregators)

Structure



StrengthsStructure- Based on shared goals- Both institutions focus on their core activities- Aligning efforts to increase TA effectiveness in the field

Process- Early MOU signing to demonstrate high-level commitment- Designated and committed HQ and country-level POCs- Led to increased country-level coordination- Regular communications



ChallengesStaying on timeline- 12 months from concept to launch- Projects are each at least five years long

Clarifying roles- Maintain each organization’s key functions, focus TA efforts

Managing stakeholder expectations

Maintaining inertia and communication after launch- Encourage country-level contacts to coordinate to focus on

implementation



Beyond the PilotIncorporate structure into future agriculture focused DCA guarantees

Encourage country-level TA coordination even in the absence of DCA guarantee

Share successes and challenges broadly to inform other- local financial institutions considering lending against direct

contracts and forward contracts (from WFP-P4P and others)- guarantors seeking to replicate the project


Questions

Documents

WFP-P4P Annual Conference January 30, 2013