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USAID Credit Guarantees
Effective Catalysts
for
Private Investment
in
Municipal Finance
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Need for Private Financing
Financing needs are too large to be met solely by donor and
host government funds
– need for sustainable solutions
Critical to have a legal and regulatory environment that
attracts private capital
– banks will still be reluctant to undertake new projects in new sectors
Partial guarantees can serve as a catalyst for:
– private financing in new sectors and new projects
– development of capital markets.
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Premise of Credit Guarantees
 Abundance of creditworthy but underserved sectors
– bankable projects exist!
 Huge reserves of dormant private capital in
developing countries
 Long-term private sector led growth depends on
mobilization and use of private capital locally.
USAID’s Partial Credit Guarantees
 USAID offers loan, portable, portfolio and bond
guarantees
 Cover up to 50% of the loss to private lenders from
local currency loans for development activities
 Projects are primarily identified and designed by
USAID Missions in the field with support from
USAID/Washington
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Impact of Partial Guarantees
 Mobilize local private capital; can increase tenors as well as
reduce collateral requirements and interest rates,
 Demonstrate economic viability of new investments to the local
banking sector and private investors
 Coupled with USAID technical assistance, can enhance capacity
of risk-sharing partners to perform thorough due diligence and
prudent risk management
 Add depth to local capital markets
 Sustainability – can produce new and continued lending without
further need for donor guarantees or other credit support.
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Example - Bond Guarantee for Water
India
Amount: $6,400,000
Purpose: Provides a partial
bond guarantee for a pooled
funding vehicle for
financing water and
sewerage infrastructure
projects in seven selected
suburban municipalities in
Tamil Nadu, India.
Institutional
Investors
Escrow
Pooled Water &
Sanitation Fund
Projects
100% Guarantee
State
Government
50% Guarantee
USAID
Municipalities
General Obligation
Revenue Resources
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(cont.) - features of the Bond Offering
 Indian Rupee equivalent of $6.4 million U.S Dollars issued – Fitch
rating of India AA, Bonds have 15-year term - very long for India.
 Water & Sanitation Pooled Fund is special purpose-vehicle,
independent from State of Tamil Nadu and privately managed.
 Repayment of bonds supported by portfolio of loans on-lent to small
municipalities and several credit enhancements: USAID’s partial
guarantee and a State-financed Debt-Service Reserve Fund.
 Pooled-financing reduces aggregate transaction costs and interest rates
due to larger issuer size, higher credit rating and wider (larger) group of
investors willing to purchase bonds.
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Additional Benefits of WSPF Bond Offering
Easily replicated –
WSPF is a Revolving Fund
Other Indian states are seeking similar revolving Funds
for their water and sanitation projects
Encourages good governance
and fiscal reform of municipalities
Adds depth to capital markets
– long tenor and new type of issuance
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Example - Municipal Energy Infrastructure
Bulgaria
USAID
Type: Loan Portfolio Guarantee
Amount: $6,250,000
Purpose: Provides a guarantee to
a bank that lends long-term funds
to municipalities seeking to
invest in energy efficient
technologies.
50% Guarantee
UBB
Loans
Municipalities
Example – Water Infrastructure
South Africa
Type: Loan Guarantee
Amount: $25,000,000
Purpose: Provides a partial
loan guarantee to a private
sector bank for a loan made
to the City of Johannesburg
for the financing of water,
sewerage, utilities, and other
infrastructure projects in the
metropolitan area.
USAID
50% Guarantee
ABSA
Loan
City of Johannesburg
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Example - Partner with Local Guarantor
Philippines
Type: Loan Guarantee
Amount: $28,500,000
Purpose: provides a 30%
partial re-guarantee of
municipal infrastructure
guarantees made by a private
guarantor of local government
infrastructure projects.
USAID
30% Guarantee
LGUGC
100% Guarantee
Banks
Loans
Municipalities
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John Wasielewski
Director - Office of Development Credit
USAID
Washington, D.C.
202-712-5058
[email protected]