DEVELOPMENT CREDIT AUTHORITY-DCA

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DEVELOPMENT CREDIT AUTHORITY-DCA
PRESENTATION TO FTF PARTNERS 2nd QUARTRLY
COORDINATION MEETING
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EXECUTIVE SUMMARY

• DCA programs have been in Ethiopia for 13 years
  and facilitate increased lending via partnerships
  with local lenders
• Current Ethiopian DCA have been expanded to
  provide enhanced coverage to agriculture and
  health care industries
• More than US20 million combined is available for
  agriculture and health care loan guarantees, with
  the objective to increase lending and grow the
  equipment leasing market
• Serengeti Capital gives Technical Assistance to
  this program focusing on both Borrowers and Banks

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MAJOR OBJECTIVES OF DCA PROJECT

• Loan guarantee scheme (50) with local banks
  supporting small and medium enterprises in
  various sectors
• Support the development of key sectors and
  financial markets
• Mobilize local cash, encourage local markets, and
  explore new sectors and activities
• Demonstrate the sustainability and profitability
  in tradition under represented economic sectors

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OVERVIEW OF DCAs
Background
Approach

• Broad financing authority allowing private sector
  bank resources to have a greater and sustainable
  impact in supporting economic growth
• Have been used by USAID/ Ethiopia since 1999 to
  stimulate lending to underserved markets
• Past target groups include SMEs in priority
  members of the Diaspora community and women
  entrepreneurs focusing on Agriculture related
  activities.

• Partnership agreements with local private banks
• USAID guarantees 50 of borrowers collateral
  need
• Partner banks reimbursed the net principal on
  default loans covered under the agreement
• All loans made with partner banks funds
• Due diligence and credit decisions made by lender

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CURRENT ETHIOPIAN DCA

• Agricultural Equipment Financing DCA
• Health Care DCA
• Diaspora DCA
• Women DCA

Structure
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PROPOSED DCA STRUCTURE
Health care

• A US13.5 million, multi-bank loan portfolio
  guarantee for private health providers offering
  HIV/AIDS and TB services
• Equipment financing facility shared by two
  private commercial banks - NIB Bank and Bank of
  Abyssinia

Agriculture

• A US7.3 million, multi-bank loan portfolio
  guarantee for six years
• Equipment financing facility shared equally by
  two private commercial banks - Bank of Abyssinia
  and Zemen Bank

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EXPECTED IMPACT

• Partner banks increase lending in agricultural
  sector especially financing for agricultural
  equipment
• Targeted small holder farmers and agro-processing
  industries will have opportunity to accumulate
  capital assets that enable them to maximize their
  farming activities

Results

• Partner banks develop own strategy for expanding
  lending to targeted businesses without a
  guarantee, perhaps via leasing subsidiaries or
  expanded lending via intermediaries to
  agricultural sector
• Additional local financial institutions will
  introduce equipment leasing businesses/
  subsidiaries or, at a minimum, increased lending
  to this sector

Long-term goals
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SERENGETI CAPITALS ROLE
Health care

• Provide technical assistance under the various
  programs as follows
• Serve as a point of contact for DCA
  implementation monitoring
• Provide borrower focused TA
• Provide bank focused TA

Technical assistance
Agricultural equipment leasing
Diaspora
Women entrepreneurs
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BORROWER FOCUSED TA
TA SUPPORT PROCESS
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BORROWER FOCUSED TA

• Assist with business plan development
• Review Business plan and cash flow projections
• Appraise Feasibility studies
• Advise on bank regulations and guidelines
• Business registration assistance
• Training on business functions

Business development

• Help potential borrowers understand how lending
  process functions
• Link potential borrowers with appropriate banks

Potential lenders
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BORROWER FOCUSED TA
CHECK LIST OF REQUIREMENTS FOR LOAN APPLICATION

• Application letter
• Yellow card
• Tax identification No.
• Feasibility study/Business plan
• Valid license/registration No.
• Investment permit
• Article and memorandum Association/PLC/SC
• Delegation of Authority for signing loan
  contracts
• Company board resolution to borrow

• Original collateral documents (e.g. Title deed,
  car ownership booklet, etc)
• Consent of mortgagor (if property owned by third
  party)
• Evidence of marital status
• Financial statements/SI/SC/F)
• Invoices
• Bills of quantity
• Credit information from other banks

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BANK FOCUSED TA

• Training on how to administer the DCA guarantee
• Training on credit-risk analysis and cash-flow
  lending
• Pre-screening and referrals of potential
  beneficiaries
• Conducting field visits with bank staff to
  observe potential projects and borrowers

Capacity building

• Designing and promoting a lending product using
  the guarantee
• Advising on setting up specific lending units in
  the Bank to promote new products around guarantee
  
• Outreach to potential borrowers targeted by the
  guarantee

Marketing assistance
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THANK YOU!
QUESTIONS?