U.S. Agency For International Development

1
U.S. Agency For International Development

• Financing Water
• Using Partial Loan Guarantees
• Jacqueline E. Schafer
• Deputy Assistant Administrator
• Bureau for Economic Growth, Agriculture Trade
• John Wasielewski,
• Director, Office of Development Credit

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USAIDs Approach to Water Finance

• Adapted from US experience with Clean Water Act
  of 1972
• Grant funding limited and unsustainable
• Pressing need to mobilize private funding for
  public services
• New approach provides for increased security over
  direct investment in emerging economies
• New approach uses a combination of grant
  funds/technical assistance, and loan guarantees
  as security to attract private investors

3
Water Revolving Funds (WRF)

• WRFs offer pooled-financing mechanisms that can
  mobilize private sector investment on commercial
  terms
• Each WRF will raise capital from local markets
  for on-lending to municipal private entities
  for water infrastructure

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Water Revolving Funds (WRFs)

• Supporting Activities
• Technical assistance in local financial market
  development
• Partial loan or bond guarantees
• Intercept agreements on inter-governmental
  transfers
• Initial capital funds from donors reserve fund
  support

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USAID Approach Using Loan Guarantees

• Over the past 4 years USAID has used partial loan
  guarantees to mobilize local capital for
  investment in a variety of sectors
• We believe that this approach can work for the
  provision of potable water and for waste water
  treatment

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What is DCA?

• A financial tool used by USAID to achieve its
  development objectives
• Loan Guaranty Authority allowing USAID to issue
  partial guarantees to private sector lenders
• Available for all sectors SME, Microfinance,
  Infrastructure, Water, Health, Energy,
  Environment, etc
• Projects are financially sound and economically
  viable
• Financial risk is shared with local financial
  institutions lenders typically carry 50 of the
  risk

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DCA Projects by SectorAs of December 1, 2003
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Financing Clean Water in India Through DCA
Municipal Bond GuaranteesTamil Nadu Water
Sanitation Pooled Fund,Karnataka Water
Sanitation Pooled Fund Trust
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Activity Description

• Tamil Nadu
• The pooled financing mechanism supported by
  guarantee will provide investment funds to small
  and medium Urban Local Bodies (ULBs) in Tamil
  Nadu, India, to implement water and sanitation
  projects, which will benefit low-income
  populations in these localities
• 50 bond guarantee of equivalent of US6,400,000
  for TNUDF
• Individual bonds will carry a face value
  equivalent to US2,000 with 9.5 interest rate
  and 15 year maturities
• Guarantee is embedded in the project structure
  behind two payment mechanisms 1) an escrow
  account and 2) debt service reserve fund backed
  by intercepted state transfers
• Supports USAID/Indias Strategic Objective (SO)
  4.3, Improved urban environmental infrastructure
  built and services delivered in selected cities

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Project Diagram, Tamil Nadu

• Country India
• Type Bond Guarantee
• Amount 6,400,000
• Guarantee Ceiling 3,200,000
• Leverage Ratio 16 to 1. The estimated cost to
  the US Government for issuing the Guarantee on
  the 6,400,000 bond amount is approximately
  392,960.

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Activity Description

• Karnataka
• The guarantee facility will provide credit
  enhancement to the issuance of a bond to raise
  capital for a water supply and sewerage
  infrastructure development project in 8
  municipalities within the Bangalore Metropolitan
  Area
• 50 bond guarantee of equivalent of 21,700,000
  for Karnataka Urban Infrastructure Development
  Finance Corp.
• Guarantee is embedded in the project structure
  behind two payment mechanisms 1) an escrow
  account and 2) debt service reserve fund backed
  by intercepted state transfers

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Project Diagram, Karnataka

• Total Loans Available for coverage 21,700,000
• Term 15 years
• Portion Guaranteed 10,850,000
• Bond Guarantee Type Double-barreled
• Coupon 7.5 - 8.0
• Trustee WSPF (KUIDFC)
• Investors Private placement

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Expanding Access to Sustainable Utility Services
in Egypt Through DCA Loan Portfolio
GuaranteesCommercial International Bank (CIB)
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Activity Description

• Equivalent of US40,000,000 loan portfolio
  guarantee for CIB
• Guarantee has a 12 year term and covers 50
  principal on the portfolio of loans
• Estimated number of sub-loans to be extended is
  twenty at approximately 2,000,000 per borrower
  for a term of 5-7 years
• All borrowers must be Private Sector Provision
  (PSP) enterprises, offering goods or services
  pursuant to an agreement with a public water or
  wastewater utility

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Project Diagram

• Country Egypt
• Type Loan Portfolio Guarantee
• Amount 40,000,000
• Guarantee Ceiling 20,000,000
• Leverage Ratio Mission funding of approximately
  1 million will leverage the Egyptian pound
  equivalent of approximately 56 million in loans
  from local private banks to PSPs.

Commercial International Bank (CIB)
50 DCA Guarantee
Loan
Loan
Loan
Private Sector Provision (PSP) Enterprises
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DCA Global ReachAs of December 1, 2003
Europe Eurasia (22) Armenia (4)
Kazakhstan Bosnia (4) Romania Bulgaria (5)
Russia Croatia Ukraine Moldova (4)
Latin America Caribbean (17) Ecuador Guatemala
(2) Honduras (3) Jamaica Mexico
(2) Nicaragua Peru (5) Regional (2)
Asia Near East (20) Bangladesh (2) Egypt
(2) India (2) Morocco (9) Philippines (2) Vietnam
(3)
Africa (17) Ghana (2) Kenya (3) Mali (2) South
Africa (3) Uganda (7)
Note Number in parentheses represents the number
of deals per country/region
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U.S. Agency For International Development

• US Agency for International Development
• Ronald Reagan Building
• 1300 Pennsylvania Ave NW
• Washington, DC 20523-3800
• Phone [phone]
• Fax [phone]
• Email odc_at_usaid.gov
• http//www.usaid.gov/our_work/economic_growth_and_
  trade/
• development_credit/index. html